Last Week's Presentation at the University of Maryland's Public Policy School

April 18, 2011

On Wednesday I spoke to students and faculty at the University of Maryland’s Public Policy School about the challenges of restraining federal health care spending.  My remarks drew heavily on my April 4 presentation to the World Health Care Congress (see my blog post from that day), as well as on CBO’s analysis of Congressman Ryan’s budget proposal released late last week.

I began by stressing a point that I’ve been making for the past couple of years: Growth in spending on health care programs is one of the central fiscal challenges facing the federal government. In the current fiscal year, the federal government will spend more than $1 trillion on health care—more than half of that amount through Medicare. Last year’s major health care legislation made important changes to that program, by reducing payments to Medicare providers and by including numerous provisions intended to identify opportunities and create incentives for providers to make changes to the health care delivery system that will reduce costs and improve the quality of care. Even with all those provisions in effect, CBO’s projections still show spending on federal health programs rising relative to the size of the economy during the next decade, thus putting increasing pressure on the federal budget.

I then talked about how the federal government has other tools for restraining its spending on health care programs, but applying those tools would not be painless. One approach would be to reverse the expansion of Medicaid and the subsidies for purchasing insurance that were enacted in last year’s legislation. Another approach would be to change the eligibility rules for Medicare or Medicaid. A third approach would be to increase the premiums paid by beneficiaries. Other approaches exist as well. My list was not meant to be comprehensive or to represent any sort of recommendation, but to show that options exist.

On April 4, Congressman Ryan proposed his own approach for reining in federal health care spending. The significant changes to the Medicare and Medicaid programs that he proposes would substantially reduce federal health care spending relative to the amounts spent under current law, especially in the long run. However, CBO’s analysis of that plan showed that most elderly people would eventually pay more for their health care than they would pay under current law.

At the end of my talk, I stressed that the problems related to federal health care spending are solvable. Our country has tremendous human and physical resources to tackle these issues. We simply need to recognize that there are tradeoffs in designing government policies, and then make informed choices given those tradeoffs.