CBO Director discusses health care spending growth

Congressional Budget Office Director Peter Orszag on Thursday at a hearing of the Senate Budget Committee said that federal spending on Medicare and Medicaid would increase from about 4.5% to about 20% of U.S. gross domestic product by 2050, CongressDaily reports.

At the hearing, the first in a series on health care costs, Orszag said, "Rising health care costs and their consequences for federal health insurance programs constitute the nation's central fiscal challenge" (Posner, CongressDaily, 6/21). He added, "The rate at which health care costs grow relative to income is the most important determinant of the long-term fiscal balance; it exerts a significantly larger influence on the budget over the long term than other commonly cited factors, such as the aging of the population" (Reichard, CQ HealthBeat, 6/21).

According to Orszag, efforts to limit federal health care spending "over the long term will be very difficult without addressing the underlying forces that are also causing private costs for health care to rise." Orszag attributed increased health care spending in part to new medical treatments, which "introduce new categories of spending" and in some cases "are being given broadly to patients" who "could do just as well with less-expensive care" (CongressDaily, 6/21).

Asked about the effects of Medicare Advantage on federal health care spending, Orszag said that, "if over the next couple of years the rate of growth that we have experienced recently in Medicare Advantage were to continue, I think the result would be a fundamental change in the nature of the Medicare system that may then be hard to reverse," adding that the larger the rate of growth, "the more fundamental the change in the current nature of the Medicare system, and the higher the cost of the system" (CQ HealthBeat, 6/21).

Recommendations
Orszag recommended expanded research on the comparative effectiveness of medical treatments through increased collection and data on patients that could compare treatments with the information made available to physicians under privacy restrictions. In addition, he recommended "modest" financial incentives to physicians and patients to encourage use of cost-effective medical treatments (CongressDaily, 6/21).

He also recommended the elimination of regional variations in the practice of medicine, a move that he said could reduce health care spending by 30%. He added that, although improved preventive care and "wellness" programs can "help to promote better health outcomes," their "effects on federal and total health spending are uncertain" (CQ HealthBeat, 6/21).

Orszag's testimony is available online.