1. Three Health Care Paradoxes Signature Health Conference 19 October 2006 Henry J. Aaron Bruce and Virginia MacLaury Senior Fellow The Brookings Institution

2. Tomorrow’s Health Care  Enormous promise  Enormous cost Promise or Tease?

3. Mismatch between taxes and promised spending Why it matters Why it matters…  Termites in the woodwork (slowed growth)  High debt  high interest  High taxes and sharply reduced spending

4. If "monster" seems like rhetorical overkill, then recall what the aging baby boom does to government. Federal spending on the elderly is plausibly projected to double from 2000 to 2030 as a share of national income. About three quarters of that increase will be health spending —mostly Medicare, but also Medicaid (70 percent of Medicaid spending goes to the old and disabled). The rise in health spending exceeds all of today's discretionary domestic spending on schools, the FBI, the environment and much more. Robert Samuelson, Newsweek columnist

5. Simply put, our nation’s fiscal policy is on an unsustainable course. unsustainable course....[B]udget simulations... Show [that] over the long term we face a large and growing structural deficit due primarily to known demographic trends and rising health care costs. Nothing less than a fundamental reexamination... Nothing less than a fundamental reexamination of all major existing spending and tax policies... is needed. David Walker, Government Accountability Office

6. ...a country with large numbers of impoverished elderly citizens languishing in understaffed, overcrowded, substandard nursing homes.You see a government substandard nursing homes. You see a government in desperate trouble. in desperate trouble. It’s raising taxes sky high, drastically cutting retirement and health benefits, slashing defense, education, and other critical spending, and borrowing far beyond its capacity to repay. It’s also printing tons of money to ‘meet’ its bills. You see major tax evasion, high and rising rates of inflation, a growing underground economy, a rapidly depreciating currency, and more people exiting than entering the country. Laurence J. Kotlikoff, professor of economics, Boston University Scott Burns, journalist

7. Three paradoxes 1.Health care is worth what it costs on the average … and is hugely wasteful on the margin 2.Insurance for all is inexpensive, but required shifts in financing make it impossible to achieve 3. To close looming government deficits requires that private health care financing must be reformed

8. Actual and Projected Deficits excluding Interest Payments YearProjected Deficit, including all expenditures and revenues Revenues 2005 (actual) – 1.217.5 2020 – 3.218.3 2030 – 7.318.3 2040 –11.518.3 2050 –16.018.4