Saving Our Future Tough Choices in Health Care & for the Budget Iowa Committee for Value in Healthcare Des Moines April 2, 2009 Eugene Steuerle Vice-President The Peter G. Peterson Foundation

More Beneficiaries, Less Workers Source: The Social Security Administration The Future of Social Security (2008) 2

Projected Real Health Care Costs Per Person (2008 Dollars) Source: Congressional Budget Office, U.S. Census and PGPF calculations. 3

Sources of Growth in Projected Federal Spending on Medicare and Medicaid Source: Congressional Budget Office

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Major Fiscal Exposures ($ trillions) Explicit liabilities$6.9$12.2 Publicly held debt Military & civilian pensions & retiree health Other Commitments & contingencies E.g., PBGC, undelivered orders Implicit exposures Future Social Security benefits Future Medicare Part A benefits Future Medicare Part B benefits Future Medicare Part D benefits Total$20.4$ Source: PGPF analysis of 2000 and 2008 Financial Report of the United States Government. Note: Estimates for Social Security and Medicare are at present value as of January 1 of each year and all other data are as of September 30.

A Budget for a Declining Nation? Less saving (long-run) Less work Reduced investment Increased dependence upon foreign lenders Reduced investment in our children 8

Key National Indicators: Where the United States Ranks The United States may be the only superpower, but compared to most other OECD countries on selected key economic, social, and environmental indicators, on average, the U.S. ranks 9 OECD Categories for Key Indicators (2007 OECD Factbook) Population/Migration Energy Environment Quality of Life Macroeconomic Trends Labor Market Education Economic Globalization Prices Science & Tech. Public Finance 17 OUT OF 28 Source: PGPF analysis of 2007 OECD Factbook

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SOON…VERY SOON ANY spending on education, environment, welfare, community development and most domestic programs, as well as deficit reduction, must be paid for out of: Rescinding of tax cuts or tax increases Pared growth in health and retirement spending A larger economy through additional work and saving A very small international and defense presence 11

Source: Office of Management and Budget FY09 Historical Tables and Congressional Budget Office Updated Budget and Economic Outlook (March-09) Deficits as a % of GDP ( ) 12

Projected Composition of the President’s Budget Source: Congressional Budget Office Updated Budget and Economic Outlook (March-09) 13

Tomorrow’s Problems Are Now Today’s Long-term budget unsustainable before crisis Stimulus & financial fix necessary…but Cause large increases in debt and interest Threaten higher interest rates as well Threaten recovery if U.S. bonds not AAAAA Recovery Phase (hopefully) Unwinding large increases in debt Reducing ever-growing demographic and health costs pressures 14

Trends in Health Care Costs vs. Wages Source: Congressional Budget Office, U.S. Census and PGPF calculations 15

Source: Congressional Budget Office, U.S. Census and PGPF calculations 16

Source: OECD 2008 International Context for U.S. Spending Levels 17

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Some of the Trade-Offs Health versus everything else Negative cash wage growth in many firms Health versus other forms of social spending Education, environment, food, jobs subsidies Health versus health Acute care versus prevention Chronic care versus cure Insurance versus access & public health Health care for old versus health care for young Specialization versus primary care 20

The Way Forward Implement statutory budget controls that address discretionary and mandatory spending as well as tax preferences Achieve Social Security reform & especially encourage more work (with gains for health care as well) Reduce the rate of increase in health care costs and more effectively target related taxpayer subsidies and tax preferences Pursue comprehensive health care reform that addresses coverage, cost, quality and personal responsibility (cost growth containment key to increasing coverage) Pursue comprehensive tax reform (including health tax subsidies) Review, re-prioritize and re-engineer the base of the federal government to focus on the future and generate real results Ensure that we have processes that will enable us to achieve the above objectives within a reasonable period of time 21