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Economists: Health Cost Crisis Coming « The Washington Independent

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In what is fast becoming a repetitive exercise, some of Washington’s top economists warned lawmakers Tuesday that health-care spending threatens to devour the nation’s economy unless Congress steps in with sweeping reforms.

The message is hardly news on Capitol Hill, where some policy-makers have sounded a similar alarm for years. But forecasting a fiscal doomsday is easier than convincing a divided Congress to prevent it. Indeed, despite the urgency of the health spending warnings, lawmakers agree that no major reforms are coming this election year.


Illustration by: Matt Mahurin

Faced with pressure from the various interests within the powerful medical-services industry, lawmakers have instead continued a habit of throwing federal dollars into Medicare and Medicaid without regard to the effectiveness of treatments provided under those programs. Health-care experts say eliminating unnecessary care will be central to any health-policy overhaul, potentially saving hundreds of billions of dollars per year. But the politically thorny task of separating what works from what doesn’t will likely take years, pushing real reform to the uncertain future.

Appearing before the Senate Finance Committee, Peter Orszag, director of the Congressional Budget Office, cautioned lawmakers that continued inaction will have dire economic consequences.

“Just like the subprime crisis came home to roost when it was unsustainable,” Orszag said, “we are on an unsustainable path [in health-care spending], and bad things will happen.” The economic troubles, he added, will “far exceed what we’re facing today, unless we get at the heart of the problem.”

Budget projections support the call for drastic health-policy reform. Spending on Medicare and Medicaid amounted to 4 percent of the gross domestic product, or GDP, in 2007. But that figure is expected to grow to 12 percent in 2050 and 19 percent in 2082, according to CBO projections.

The steep inflation is not limited to public-sector programs. In 2007, the nation’s total health-care spending represented roughly 16 percent of GDP. At current rates of growth, however, that figure will jump to 25 percent in 2025 and 49 percent in 2082, CBO estimates.

“This course is clearly unsustainable,” Orszag said.

Acting U.S. Comptroller General Gene Dodaro, who also appeared before the Senate panel, put those figures into some context. At current revenue rates, he said, in 2040 the entire federal budget would cover only Social Security, Medicare and interest on the debt. No funds would be available for education, transportation, defense or any other federal programs. “Now, obviously, this is not going to happen,” Dodaro said, “but it illustrates the magnitude of the problem, and the size of the adjustments that are gonna have to take place.”

Some effects are already tangible. Employees, for example, take home between $7,000 and $10,000 less each year because that money is consumed by employer-based health plans, Orszag said. State budgets are also being stretched, causing tuition hikes at public universities. “That is happening today,” Orszag said.

Lawmakers say they recognize the crisis, but have been slow to act. Senate Finance Committee Chairman Max Baucus (D-Mont.) said Tuesday that, “if we fail to control health-care costs, it won’t matter what else we do in the rest of the budget.” But Baucus is in a tough spot. The clearest reform strategies — including tax hikes, program cuts and increased costs to beneficiaries — are also the least politically palatable. For that reason, Congress has tended to kick the trouble to be tackled another day.

“Our political system does not deal well with gradual, long-term problems,” Orszag said.

The hearing came as Senate lawmakers, led by Baucus, are trying to push through legislation preventing doctors from receiving a 10.6 percent Medicare cut, slated to take effect July 1. The doctors’ lobby has claimed that if the cut goes through, physicians will stop seeing Medicare patients — a gamble no lawmaker wants to take.

But the news is not all bad. Orszag pointed out that there are vast regional payment discrepancies where significant savings probably lurks. At UCLA Medical Center, for example, the average cost to treat a Medicare patient in the last six months of life is $50,522. Meanwhile, the cost to treat the same patient at the Mayo Clinic is $26,330.

“There is no appreciable difference in quality,” Orszag said, referring to the two renowned medical facilities. “The best medical care in the world should not cost twice as much as the best medical care in the world.”

Orszag estimates that 30 percent of all health-care spending in the United States — or roughly $700 billion per year — goes for treatments that have no positive effect on the health of patients. Worse, Medicare pays blindly for these services. “Right now, we pay for more care rather than better care,” Orszag said, “and that fundamentally has to change.”

The steep, regional price discrepancies caught the attention of some Senate Finance Committee members, who would have to stand at the front lines of any congressional efforts to rein in health-care spending. “I’m not sure we should let people get away with that,” Sen. Jay Rockefeller (D-W.V.) said, referring to the longer hospital stays and increased number of tests that are largely responsible for the cost difference.

Rockefeller said Congress has plenty of room to push physicians and other health-care providers to emphasize the quality of care above quantity. “We just tell them,” he said, “And they’ll hate it. And it’ll be called socialism and all the rest of it — and so be it.”

But change won’t come easily. That $700 billion doesn’t go into a hole, it goes into the pockets of medical personnel nationwide. Eliminate a third of the dollars spent on medical services, and jobs will surely follow. In an already struggling economy, no one — least of all a politician — wants to bear responsibility for hiking unemployment, even if it’s done for the sake of preserving Medicare.

For some observers, the delay is becoming more and more inexcusable.

Asked how quickly Congress should act, Orszag replied dryly: “Ten years ago would be the appropriate response to that question.”

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