THE CONCORD COALITION presented by Robert L. Bixby, Executive Director THE CONCORD COALITION Health Care Cost Growth: An Unsustainable Prognosis

THE CONCORD COALITION Washington Needs a Fiscal Wake-Up Call From “We The People” The Fiscal Wake-Up Tour consists of speakers from diverse perspectives who are increasingly alarmed by the nation’s long-term fiscal outlook. Our mission is to cut through the usual partisan rhetoric and stimulate a more realistic public dialogue on what we want our nation’s future to look like, along with the required trade-offs. Elected leaders in Washington know there is a problem, but they are unlikely to act unless their constituents — We The People — demand it.

THE CONCORD COALITION Composition of Projected FY 2009 Federal Government Revenues and Outlays (Deficit: $1.59 Trillion) Interest Domestic* Social Security Medicare & Medicaid Other Entitlements Defense Estate & Gift Taxes ($21 billion) Other Taxes Corporate Taxes Social Insurance Taxes Individual Income Taxes Outlays: $3.69 trillionRevenue: $2.1 trillion *Includes all appropriated domestic spending such as education, transportation, homeland security, housing assistance, and foreign aid. **CBO classification of funds allocated for TARP, Fannie Mae, and Freddie Mac. Source: CBO August In Billions of Dollars Financial Rescue**

THE CONCORD COALITION CBO August 2009 BaselineCBO’s Estimate of the President’s Budget Federal Spending vs. Revenues as a Percent of GDP (FY ) CBO March Baseline Compared to CBO Estimate of the President’s Budget Source: Congressional Budget Office, August Average outlays: 21.0% Average revenues: 18.3% Percentage of GDP ActualProjected

THE CONCORD COALITION Percent of Debt Held by the Public Owned by Foreigners ( ) Source: United States Treasury Department, Treasury Bulletin, December 2008.

THE CONCORD COALITION National Saving Is Very Low by Historical Standards Source: BEA, NIPA Tables and 5.1 (2009).

THE CONCORD COALITION Interest Costs Go Through The Roof Source: Congressional Budget Office, June Billions of Dollars

THE CONCORD COALITION 66% 28% 6% 44% 14% 42% 38% 9% 53% MandatoryDiscretionaryNet Interest Source: Congressional Budget Office, January Mandatory spending is consuming a growing share of the budget NOTE: Numbers may not add up due to rounding

THE CONCORD COALITION Outlays of Select Mandatory Spending Programs (FY 2009 Projected) Source: Congressional Budget Office, January 2009.

THE CONCORD COALITION Social Security, Medicare, & Medicaid as a Percentage of the Federal Budget All other Federal Spending $1.91 Trillion 59% Social Security, Medicare and Medicaid $1.35 Trillion 41% Source: Congressional Budget Office, August CBO treatment of TARP, Fannie Mae and Freddie Mac: $424 billion

THE CONCORD COALITION America’s Population is Aging Population age 65 and Over Source: Social Security and Medicare Trustees’ Report, May Year Percentage of Population Aged 65 and Over

THE CONCORD COALITION Health Expenditures as a Percent of GDP ( ) *Projected Source: Centers for Medicare and Medicaid Services.

THE CONCORD COALITION Health Care Costs are Rising Faster Than the Economy Source: Congressional Budget Office, June Percentage of GDP Historic Level of Federal Revenues Historic Level of Federal Spending Assumes that health care cost growth will not exceed GDP growth. Assumes that health care cost growth continues at the average rate for the past 40 years (2.5 percentage points greater than GDP growth.) Assumes that health care cost growth rate declines to 1.0 percentage point greater than GDP growth— consistent with the assumption used by the Medicare Trustees.

THE CONCORD COALITION Factors Explaining Future Federal Spending on Medicare, Medicaid, and Social Security Source: Congressional Budget Office, June Percent of Growth Attributed to: Excess Cost Growth36%56% Aging64%44%

THE CONCORD COALITION How Paying for Health Care Has Changed ( ) Source: Centers for Medicare and Medicaid Services.

THE CONCORD COALITION Sources of Medicare Funding 16

THE CONCORD COALITION Medicare Costs Soar in the Coming Decades Calendar Year As a Percentage of GDP General Revenues required to fund the program Income from dedicated taxes, premiums, and state transfers Source: Medicare Trustees’ Report, May 2009.

THE CONCORD COALITION Benefits promised far exceed dedicated tax revenues Source: Social Security Trustees’ Report—May 2009 (Intermediate Projections). Social Security Outlays Payroll Tax & Taxation of Benefits Percent of Taxable Payroll Calendar Year Social Security Cash Deficits

THE CONCORD COALITION Social Security and Medicare Part A Cumulative Cash Surpluses and Deficits In Constant 2009 Dollars — 2009 through 2085 In Billions of Constant 2009 Dollars Calendar Year Source: Social Security Trustees’ Report—May 2009 (Intermediate Projections) $147 Billion: Cumulative Social Security Cash Surplus -$28 Trillion: Cumulative Social Security Cash Deficits -$58 Trillion: Cumulative Medicare Part A Cash Deficits -86 Trillion: Cumulative Social Security and Medicare Part A Cash Deficits

THE CONCORD COALITION Social Security, Medicare, Medicaid and Interest Consume All Federal Revenues in under 20 Years Year Percentage of Revenues Social Security, Medicare and MedicaidInterest Source: Government Accountability Office, March 2009.

THE CONCORD COALITION Current fiscal policy is on an unsustainable path Federal Outlays as a Percentage of GDP Social Security Medicaid Medicare All Other Interest Source: Government Accountability Office, March Average tax revenue

THE CONCORD COALITION Cost Control Strategies 1.Budgetary restraint. Unlike many other nations, we do not budget for health care. Yet all of our nation’s commitments need to be evaluated and prioritized. That’s impossible without long-term budgeting for one of the largest spending categories. A health care budget would force politicians, providers and the public to do the necessary prioritizing for responsible health care spending. 2.Perverse payment incentives. Fee-for-service payment reimbursing providers for each individual service raises costs in two ways. It rewards providers who do more, regardless of whether that contributes to better health. And it encourages fragmented care rather than a coordinated approach in which providers are jointly accountable for a patient’s health. That, combined with third-party insurance coverage and open-ended budgets for public programs such as Medicare, means no one has an incentive to minimize costs. 3.Evidence-based practices. Extraordinary variation exists across the country in health care costs, with no difference in the quality of care. This results, in part, from lack of knowledge about the effectiveness of treatments and from insufficient evidence-based practice guidelines. It leads to widespread use of ineffective treatments while effective treatments are under-utilized. Ultimately, we need to decide which treatments are worth paying for and which are not. 4.Tax incentives. Tax preferences for health insurance allow employers to provide unlimited benefits tax-free. This creates another perverse incentive that encourages higher health care spending. It is also regressive and unfair to those attempting to purchase their own insurance. 5.Enforcement mechanism. There will be an ongoing need to ensure that assumed savings are realized, guard against unintended consequences and provide a means to implement future “curve bending” reforms. A permanent review mechanism is needed to make recommendations that must be considered by Congress.

THE CONCORD COALITION Key Points of Agreement Members of the Fiscal Wake-Up Tour do not necessarily agree on the ideal levels of spending, taxes and debt, but we do agree on the following key points: Current fiscal policy is unsustainable There are no easy solutions, such as cutting waste fraud and abuse or growing our way out of the problem. Finding solutions will require bipartisan cooperation and a willingness to discuss all options. Public engagement and understanding is vital in finding solutions. This is not about numbers. It is a moral issue.