Growing Health Care Costs Must Be Addressed Before Social Security

Armen Hareyan's picture

The "rate at whichhealth care costs grow will be the primary determinant of the nation'slong-term budget picture," CongressionalBudget OfficeDirector Peter Orszag writes in a Wall Street Journal opinionpiece. According to Orszag, CBO projections show that "under current law,federal spending on Medicare and Medicaid measured as a percentage of grossdomestic product will rise to 12% in 2050 and almost 20% around 2080 from 4%today." He adds that a significant part "of that projected increasearises from steadily growing health care costs per beneficiary." Inaddition, the "aging of the population, although a less important factor,will exacerbate the fiscal pressures created by rising health care costs,"Orszag writes.

He continues, "Such increases in spending associated with both agingand increased health care costs -- unless matched by significant reductions inother spending or increases in revenues -- would ultimately create outsizedbudget deficits that would raise government debt to unprecedented levels."According to Orszag, "The bottom line is that while we need to address theeffects of the coming retirement of the baby boomers and the projectedimbalance in Social Security, we have to pay even more attention to the healthcare costs that exert the dominant influence on our fiscal future."

Orszag writes, "The interactions between Medicare and Medicaid and therest of the health system can complicate long-term efforts to reducecosts," adding, "But it's too soon to conclude that the fiscalpicture is hopelessly dismal" because there "remains the promisingpossibility of restraining health care costs without incurring adverse healthconsequences." In addition, it might "be possible in some cases toreduce cost growth and improve health at the same time," he writes.


According to Orszag, costs per beneficiary in Medicare that "varysubstantially across the U.S.... cannot be explained fully by the characteristics of the patients or pricelevels in different areas." Orszag writes that "understanding thereasons for such differences and finding effective ways to reduce them whileensuring high-quality care will not be easy." However, he adds,"Potentially promising approaches include generating more informationabout the relative effectiveness of medical treatments and enhancing theincentives for providers to supply, and consumers to demand, better care,rather than just more care."

Orszag concludes, "Moving the nation toward a more efficient health systeminevitably will be a process in which policy steps are tried, evaluated andmaybe reconsidered," adding, "Beginning that arduous process now isessential to securing the nation's long-term economic future" (Orszag, WallStreet Journal, 12/12).

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