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Liberal Analysts Express Alarm Over Health Spending

By John Reichard, CQ HealthBeat Editor

January 29, 2007 -- Liberal budget analysts expressed alarm Monday over the outlook for the federal budget, saying projected shortfalls must be addressed through a combination of tax increases, budget cuts, and an overhaul of the U.S. health system.

Illustrating the long-term fiscal challenge, the Center on Budget and Policy Priorities estimated that keeping the national debt at its current level relative to the economy through 2050 would require tax increases, budget cuts, or a combination of both totaling $480 billion a year each year over the next 42 years.

If entitlement programs aren't changed and the Bush administration's 2001 and 2003 tax cuts are extended, "the national debt, now 37 percent of the size of the U.S. economy, will soar to 231 percent of the economy by 2050," the center said in a report released Monday that incorporates projections released last week by the Congressional Budget Office. "At that point, interest payments alone would soak up more than half of federal revenues," the report said.

"The problem we face is too large to be solved solely by raising taxes or solely by reducing programs," Jim Horney, the center's director of federal fiscal policy, said in a press release. Taking that path would require "the equivalent of an immediate and permanent 21 percent increase in tax revenues or an immediate and permanent 18 percent reduction in all government programs, including Social Security, Medicare, defense and anti-terrorism activities, education, veterans' benefits, law enforcement, border security, environmental protection, and assistance to the poor," the center said.

The report is striking in its tone, calling the projections "alarming," the budget outlook "grim," and the projected deficit and debt levels "dangerous." The direct focus on health costs also is striking in that while liberal analysts have acknowledged in a general way that the federal budget faces huge shortfalls in coming years, they have tended to focus much more on tax cuts rather than health spending increases as a major factor.

To be sure, the report does take aim at the Bush tax cuts. Allowing the Bush tax cuts to expire or fully offsetting the cost of extending them would reduce the budget shortfall through 2050 by 60 percent, the center said. Stated differently, "If Congress fully abided by the pay-as-you-go rule . . . that would close three-fifths of the budget gap through 2050," Center President Robert Greenstein told reporters in an afternoon telephone press briefing. Adopted by the House, the rule requires legislation that increases federal spending or reduces taxes to be offset by cuts elsewhere in the federal budget or by tax increases.

But even if the Bush tax cuts were eliminated, "the magnitude would still be very large" of changes needed in the health system, Greenstein said. "The three programs that will cause expenditures to grow faster than the economy over coming decades are Medicare, Social Security, and Medicaid," the report said. Medicare is "by far the largest contributor to the overall growth in expenditures through 2050 because it bears the full brunt of both demographic changes and health care cost growth," the report said. Medicare clearly looms largest in the crosshairs of those concerned with the budget.

But per capita increases in health care spending in Medicare are essentially the same as for enrollees in private health plans outside of federal programs, according to the center. "Cost growth in Medicare and Medicaid tends to mirror—and is driven to a large extent by—cost growth in the health care system as a whole, including private sector care," the report said.

The challenge "is to pursue major reforms that eliminate inefficiencies in the health care system and restrain costs in the system to the greatest extent possible without unduly constraining medical progress," the report said. Greenstein suggested that the goal of covering the uninsured isn't necessarily incompatible with improving the nation's fiscal outlook, characterizing current health care spending on the uninsured as one of the inefficiencies in the system.

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