Lawmakers must act to avert crisis of escalating costs

The Government Accountability Office is known for its reviews of day-to-day government operations, which often focus on whether current programs and policies are meeting their objectives and delivering good value for dollars spent. But GAO also strives to provide policymakers with foresight about emerging trends that present serious long-term implications.

One such trend faces us now: the nation’s very expensive, and often inefficient, healthcare system.

Long-term simulations from GAO, the Congressional Budget Office and others show that, while federal deficits have declined in the last few years, our government faces structural deficits of staggering proportions in the coming decades. Although this long-term fiscal imbalance is being driven by several factors, including changing demographics, the principal cause is the escalating cost of healthcare.

In recent testimony before the Senate Finance Committee, I emphasized that this is a problem that confronts both the government and the private sector. At the federal level, Medicare and Medicaid spending are growing rapidly. State and local governments are also being squeezed, both by Medicaid costs as well as health insurance for their employees and retirees. Soaring health insurance premiums mean that fewer American businesses may cover their workers and those that do may find themselves less competitive in the global marketplace.

Healthcare spending is on the rise for several reasons, including increased utilization of services for new and existing medical technology; a lack of reliable comparative information on medical outcomes, quality of care and cost; and increased prevalence of risk factors such as obesity that can lead to expensive chronic conditions.

Demographics are another factor. Since the early 1900s, life expectancy has been rising, and with the aging of the baby boomers we are poised to see an explosion in our elderly population — individuals who, over time, generally require more, not less, medical attention.

Importantly, our current healthcare system needs to provide incentives to help contain costs and greater transparency about the actual value and costs of various healthcare options. The reality is that health insurance, including Medicare, tends to insulate consumers from the financial consequences of their healthcare choices.

Healthcare spending is outpacing U.S. economic growth. From 1976 through 2006, spending on healthcare grew from about 8 percent to 16 percent of GDP; it is projected to reach 20 percent of GDP by 2016. In 2005, we spent about $6,400 per person, nearly twice that of France, Canada and Germany.

High-priced medicine, however, is no guarantee of quality care. Despite dramatic advances in treating cancer and other diseases, the United States actually lags behind many other nations on life expectancy and other key health indicators.  We also have high medical error rates.

At the same time, more than 40 million Americans have gone without health insurance in recent years; even many working adults and their families lack coverage. For those with insurance, policies increasingly have higher cost-sharing requirements and benefit limitations.

To provide the American people with an acceptable level of healthcare in the future, there is a compelling need to examine how to better define, deliver, and finance healthcare in this country — both in the public and private sectors. We also must reevaluate how responsibility for health insurance should be divided among employers, individuals and government.

Facing up to the reality of rising healthcare spending and demographic change — and their interaction — is essential. Some of the oldest members of the baby boom generation are already drawing Social Security benefits, and they become eligible for Medicare in less than three years.

The challenge for policymakers is to act soon, before a crisis hits. The longer healthcare reform is delayed, the more painful options become. Fortunately, there is a window of opportunity to act and phase in meaningful changes that will allow providers and the public time to adjust — but that window is shrinking.

Beyond addressing the problems plaguing our healthcare system, returning America to a sustainable fiscal path will require a multi-pronged approach that addresses a broad range of current spending and tax policies.  Across the board, our government needs to revisit what it does and how it does business. A complete review of all federal activities to ensure their relevance for the 21st century is long overdue. This will require priority setting and a willingness to hold agencies and programs accountable for delivering results.

GAO will continue to encourage a more strategic, future-oriented approach to policymaking. We look forward to continuing to work with Congress to provide members with the best available information, as well as constructive policy options, to help tackle healthcare and our other long-term challenges.

Dodaro is acting Comptroller General of the United States.