Healthcare Costs and Social Security Could Cause Economic Woes

With accelerating healthcare costs, an aging population, and a shrinking Social Security surplus, the country is on an unsustainable path—and the longer action is delayed, the more difficult and painful its choices, Gene Dodaro, the acting comptroller general, told the Senate Finance Committee Tuesday. He said the scope and magnitude of the country's budget problems made two things essential: an examination of all aspects of federal revenue and spending, and a reform of the healthcare system.

Senate Finance Committee Chairman Sen. Max Baucus, D-Mont., center, accompanied by fellow Senate Democrats, listens to a reporter's question during a news conference on Capitol Hill in Washington.

If revenues held constant, by 2030 Uncle Sam would have enough resources to pay only the national debt, Social Security, Medicare, and Medicaid, Dodaro warned. That means that just as financial pressures are increasing, the window of opportunity to phase in adjustments is shrinking, he said. Although nearly 80 million Americans will become eligible for Social Security benefits over the next two decades, Dodaro said the real problem is healthcare spending, since Medicare and Medicaid "are both large and projected to continue growing rapidly in the future." The bottom line: Blame healthcare costs, not baby boomers, for the looming crisis.

Sen. Max Baucus, the Montana Democrat who chairs the panel, noted that healthcare spending per capita had grown faster than the overall economy since 1975: 2.4 percent faster in Medicare, 2.2 percent faster in Medicaid, and 2 percent faster elsewhere. Dodaro said the jump in health costs has hit all sectors, causing financial problems for state and local governments and threatening to erode employers' ability to pay for health insurance and to hamper their global competitiveness.

He told senators that three factors drove the rise in healthcare costs: more use of medical technologies; a lack of comparative information on medical outcomes; and increased risk factors such as obesity, which can lead to costly, chronic conditions.

Dodaro appeared with Peter Orszag, director of the Congressional Budget Office, who told senators that the country is borrowing heavily from abroad and warned that that might not be sustainable. Orszag likened ignoring the country's financial straits to a person staying in a dysfunctional relationship; the end would come, he said, but it would be "messier" when it did.

Orszag noted that healthcare costs varied widely by region and that higher-cost areas did not generate better medical outcomes. He pointed to a study of spending on Medicare patients who were cared for at top academic medical centers during the last six months of their lives. At UCLA Medical Center, spending totaled $50,522; at Massachusetts General Hospital in Boston, $40,181; and at a Mayo Clinic hospital in Rochester, Minn., $26,330. Orszag urged changing financial incentives for healthcare providers, encouraging healthier living, and conducting more Medicare demonstration projects "to see what works and what doesn't."

Senators seemed to swallow the medicine, however bitter. Sen. Kent Conrad of North Dakota, a Democrat who chairs the Budget Committee and sits on the finance panel, told reporters after the session that trend lines were such that they "could lead to economic collapse."

"Both witnesses were as clear as they could be," Conrad said. "Waiting [to fix the problem] is not an option."