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United States Government Accountability Office:
GAO:
Fiscal and Health Care Challenges:
The Honorable David M. Walker:
Comptroller General of the United States:
KPMG Partners’ Meeting: Arlington, VA:
October 3, 2007
GAO-08-158CG:
Composition of Federal Spending:
[See PDF for image] - graphic text:
There are three pie charts, containing the following compositions of
spending by category:
Year: 1966;
Defense: 43%;
Social Security: 15%;
Medicare and Medicaid: 1%; Net Interest: 7%;
All Other: 34%.
Year: 1986;
Defense: 28%;
Social Security: 20%;
Medicare and Medicaid: 10%; Net Interest: 14%;
All Other: 29%.
Year: 2006;
Defense: 20%;
Social Security: 21%;
Medicare and Medicaid: 19%; Net Interest: 9%;
All Other: 32%.
Source: Office of Management and Budget and the Department of the
Treasury.
Note: Numbers may not add to 100 percent due to rounding.
[End of figure]
Federal Spending for Mandatory and Discretionary Programs:
[See PDF for image] - graphic text:
There are three pie charts, containing the following compositions of
spending by category:
Year: 1966;
Discretionary: 67%;
Mandatory: 26%;
Net Interest: 7%.
Year: 1986;
Discretionary: 44%;
Mandatory: 42%;
Net Interest: 14%.
Year: 2006;
Discretionary: 38%;
Mandatory: 53%;
Net Interest: 9%.
Source: Office of Management and Budget.
[End of figure]
Table: Fiscal Year 2005 and 2006 Deficits and Net Operating Costs:
On-Budget Deficit, Fiscal Year 2005 ($ Billion): (494);
On-Budget Deficit, Fiscal Year 2006 ($ Billion): (434);
Unified Deficit[a], Fiscal Year 2005 ($ Billion): (318);
Unified Deficit[a], Fiscal Year 2006 ($ Billion): (248);
Net Operating Cost[b], Fiscal Year 2005 ($ Billion): (760);
Net Operating Cost[b], Fiscal Year 2006 ($ Billion): (450);
Sources: Office of Management and Budget and Department of the
Treasury.
[a] Includes $173 billion in Social Security surpluses for fiscal year
2005 and $185 billion for fiscal year 2006; $2 billion in Postal
Service surpluses for fiscal year 2005 and $1 billion for fiscal year
2006.
[b] Fiscal year 2005 and 2006 net operating cost figures reflect
significant but opposite changes in certain actuarial costs. For
example, changes in interest rates and other assumptions used to
estimate future veterans’ compensation benefits increased net operating
cost by $228 billion in 2005 and reduced net operating cost by $167
billion in 2006. Therefore, the net operating costs for fiscal years
2005 and 2006, exclusive of the effect of these actuarial cost
fluctuations, were ($532) billion and ($617) billion, respectively.
[End of table]
Table: Major Fiscal Exposures ($ trillions):
Explicit liabilities (Publicly held debt, Military & civilian pensions
& retiree health, Other): 2000: $6.9;
2006: $10.4;
Percent increase: 52.
Commitments & contingencies (e.g., PBGC, undelivered orders): 2000:
0.5;
2006: 1.3
Percent increase: 140.
Implicit exposures, 2000: 13.0;
Implicit exposures, 2006: 38.8;
Implicit exposures, Percent increase: 197;
Future Social Security benefits, 2000: 3.8;
Future Social Security benefits, 2006: 6.4;
Future Social Security benefits, Percent increase: [Empty];
Future Medicare Part A benefits, 2000: 2.7;
Future Medicare Part A benefits, 2006: 11.3;
Future Medicare Part A benefits, Percent increase: [Empty];
Future Medicare Part B benefits, 2000: 6.5;
Future Medicare Part B benefits, 2006: 13.1;
Future Medicare Part B benefits, Percent increase: [Empty];
Future Medicare Part D benefits, 2000: 0;
Future Medicare Part D benefits, 2006: 7.9;
Future Medicare Part D benefits, Percent increase: [Empty];
Total, 2000: $20.4;
Total, 2006: $50.5;
Percent increase: 147.
Source: 2000 and 2006 Financial Report of the United States
Government.
Note: Totals and percent increases may not add due to rounding.
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.
[End of table]
Table: How Big is Our Growing Fiscal Burden?
This fiscal burden can be translated and compared as follows:
Total major fiscal exposures: $50.5 trillion;
Total household net worth[1]: $53.3 trillion;
Burden/Net worth ratio: 95 percent.
Burden[2]:
Per person: $170,000;
Per full-time worker: $400,000; Per household: $440,000.
Income:
Median household income[3]: $46,326;
Disposable personal income per capita[4]: $31,519.
Source: GAO analysis.
Notes: (1) Federal Reserve Board, Flow of Funds Accounts, Table B.100,
2006:Q2 (Sept. 19, 2006); (2) Burdens are calculated using estimated
total U.S. population as of 9/30/06, from the U.S. Census Bureau; full-
time workers reported by the Bureau of Economic Analysis, in NIPA table
6.5D (Aug. 2, 2006); and households reported by the U.S. Census Bureau,
in Income, Poverty, and Health Insurance Coverage in the United States:
2005(Aug. 2006); (3) U.S. Census Bureau, Income, Poverty, and Health
Insurance Coverage in the United States: 2005(Aug. 2006); and (4)
Bureau of Economic Analysis, Personal Income and Outlays: October 2006,
table 2, (Nov. 30, 2006).
[End of table]
Potential Fiscal Outcomes Under Baseline Extended (January 2001);
Revenues and Composition of Spending as a Share of GDP.
[See PDF for image] - graphic text.
This is a line/stacked bar graph with one line (revenue) and four
stacked bars containing four spending items (Net interest, Social
Security, Medicare and Medicaid, and All other spending). The vertical
axis represents Percent of GDP and the horizontal axis represents
fiscal years 2005, 2015[a], 2030[a], and 2040[a].
Source: GAO’s January 2001 analysis.
[a] All other spending is net of offsetting interest receipts.
[End of graph]
Discretionary Spending Grows with GDP After 2007 and All Expiring Tax
Provisions Extended through 2017 (Thereafter Revenue Returns to
Historical Average of 18.3% of GDP plus Deferred Revenue):
[See PDF for image] - graphic text.
This is a line/stacked bar graph with one line (revenue) and four
stacked bars containing four spending items (Net interest, Social
Security, Medicare and Medicaid, and All other spending). The vertical
axis represents Percent of GDP and the horizontal axis represents
fiscal years 2006, 2015, 2030, and 2040.
Source: GAO’s August 2007 analysis.
[End of graph]
Social Security, Medicare, and Medicaid Spending as a Percent of GDP:
[See PDF for image] - graphic text.
This is a line graph with three stacked lines (Social Security,
Medicaid, and Medicare). The vertical axis represents Percent of GDP
and the horizontal axis represents fiscal years 2000 through 2080.
Source: GAO analysis based on data from the Office of the Chief
Actuary, Social Security Administration, Office of the Actuary, Centers
for Medicare and Medicaid Services, and the Congressional Budget
Office.
Notes: Social Security and Medicare projections based on the
intermediate assumptions of the 2006 Trustees’ Reports. Medicaid
projections based on CBO’s August 2006 short-term Medicaid estimates
and CBO’s December 2005 long-term Medicaid projections under mid-range
assumptions.
[End of graph]
Federal Tax Expenditures Exceeded Discretionary Spending for Half of
the Last Decade:
[See PDF for image] - graphic text.
This is a line graph with three lines (Mandatory spending; Sum of tax
expenditure revenue loss estimates; and Discretionary spending). The
vertical axis represents Dollars in billions (in real 2005 dollars) and
the horizontal axis represents fiscal years 1982 through 2005.
Source: GAO analysis of OMB budget reports on tax expenditures, fiscal
years 1976-2007.
Note: Summing tax expenditure estimates does not take into account
interactions between individual provisions. Outlays associated with
refundable tax credits are included in mandatory spending.
[End of graph]
Revenue Loss Estimates for the Largest Tax Expenditures Reported for
Fiscal Year 2006:
[See PDF for image] - graphic text.
This is a bar graph with the vertical axis representing Revenue loss
estimates (dollars in billions) and the horizontal axis depicting bars
indicating the amount of expenditures in six categories.
Revenue loss estimate, Exclusion of employer contributions for medical
insurance premiums and medical care: 187.5 (Treasury estimated income
tax revenue losses: 125; Approximate payroll tax revenue losses:
62.5[A];
Revenue loss estimate, Deductability of mortgage interest on owner-
occupied homes: 68.3; Revenue loss estimate, Net exclusion of pension
contributions and earnings: defined benefit plans: 49[A]; Revenue loss
estimate, Capital gains except agriculture, timber, iron ore, and
coal): 48.6; Revenue loss estimate, Deductability of nonbusiness states
and local taxes other than on owner-occupied homes: 43.1; Revenue loss
estimate, Net exclusion of pension contributions and earnings: 401(k)
plans: 40.8[A].
Source: GAO analysis of OMB, Analytical Perspectives, Budget of the
United States Government, Fiscal Year 2008.
[A] The value of employer-provided health insurance is excluded from
Medicare and Social Security payroll taxes. Some researchers have
estimated that payroll tax revenue losses amounted to more than half of
the income tax revenue losses in 2004, and we use this estimate for
2006. The research we are aware of dealt only with health care,
therefore the 50 percent figure may not apply to other items that are
excluded from otherwise applicable income and payroll taxes.
[End of graph]
Current Fiscal Policy Is Unsustainable:
* The “Status Quo”is Not an Option:
- We face large and growing structural deficits largely due to known
demographic trends and rising health care costs.
- GAO’s simulations show that balancing the budget in 2040 could
require actions as large as:
* Cutting total federal spending by 60 percent or;
* Raising federal taxes to 2 times today's level.
* Faster Economic Growth Can Help, but It Cannot Solve the Problem:
- Closing the current long-term fiscal gap based on reasonable
assumptions would require real average annual economic growth in the
double digit range every year for the next 75 years.
- During the 1990s, the economy grew at an average 3.2 percent per
year.
- As a result, we cannot simply grow our way out of this problem. Tough
choices will be required.
The Way Forward: A Three-Pronged Approach:
1. Improve Financial Reporting, Public Education, and Performance
Metrics. 2. Strengthen Budget and Legislative Processes and Controls.
3. Fundamentally Reexamine & Transform for the 21st Century (i.e.,
entitlement programs, other spending, and tax policy).
Solutions Require Active Involvement from both the Executive and
Legislative Branches.
Key National Indicators:
* What: A portfolio of economic, social, and environmental outcome-
based measures that could be used to help assess the nation’s and other
governmental jurisdictions’ position and progress;
* Who: Many countries and several states, regions, and localities have
already undertaken related initiatives (e.g., Australia, New Zealand,
Canada, United Kingdom, Oregon, Silicon Valley (California) and
Boston);
* Why: Development of such a portfolio of indicators could have a
number of possible benefits, including;
- Serving as a framework for related strategic planning efforts;
- Enhancing performance and accountability reporting;
- Informing public policy decisions, including much needed baseline
reviews of existing government policies, programs, functions, and
activities;
- Facilitating public education and debate as well as an informed
electorate;
* Way Forward: Consortium of key players housed by the National
Academies domestically and related efforts by the OECD and others
internationally.
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 16 out of 28.
OECD Categories for Key Indicators (2006 OECD Factbook):
* Population/Migration;
* Energy;
* Environment;
* Labor Market;
* Education;
* Public Finance;
* Science & Tech.;
* Quality of Life;
* Macroeconomic Trends;
* Economic Globalization
* Prices.
Source: 2006 OECD Factbook.
Demographic Trends Pose Challenges for Employers and Workers:
* The combination of increasing life expectancy and declining birth
rates is expected to reduce the number of workers per retiree, a trend
that will strain the finances of national pension and health programs
and may affect productivity and economic growth.
* The impending retirement of the baby boom generation and slower labor
force growth will result in the loss of many experienced workers and
possible skill gaps in certain occupations.
* Many older workers face the possibility of less secure retirements.
While longer life spans have increased the number of years individuals
spend in retirement, pension plans have increasingly shifted financial
and longevity risk to individuals and health care costs have risen
rapidly.
* The increasing ratio of the elderly to younger workers will place
added pressure on public benefits such as Social Security and Medicare,
both of which face long-term financial problems.
Aged Population as a Share of Total U.S. Population Will Continue to
Increase:
[See PDF for image] - graphic text.
This is a line graph with one line (population aged 65 and over) with
the vertical axis representing percent of total population from 0 to 25
percent and the horizontal axis representing years 1950 through 2075.
Source: Office of the Chief Actuary, Social Security Administration.
Note: Projections based on the intermediate assumptions of the 2007
Trustees’ Reports.
[End of graph].
U.S. Labor Force Growth Will Continue to Decline:
[See PDF for image] - graphic text.
This is a line graph with one line (decline of labor force growth) with
the vertical axis representing percentage change (five-year average)
from 0 to 3 percent, and the horizontal axis representing years 1970
through 2080.
Source: GAO analysis of data from the Office of the Chief Actuary,
Social Security Administration.
Note: Percentage change is calculated as a centered 5-year moving
average of projections based on the intermediate assumptions of the
2007 Trustees Reports.
[End of graph]
Personal Savings Rate Became Negative in 2006:
[See PDF for image] - graphic text.
This is a line graph with one line (personal savings rate) with the
vertical axis representing percent of disposable income (from -2.0 to
12.0), and the horizontal axis representing years 1960 through 2005.
Source: Bureau of Economic Analysis, Department of Commerce.
[End of graph]
Number of Non-elderly Uninsured Americans, 1999-2006:
[See PDF for image] - graphic text.
This is a bar graph of the number of non-elderly uninsured Americans
with the vertical axis representing population in millions from 0 to 50
and the horizontal axis representing years 1999 through 2006.
Year: 1999;
Non-elderly Uninsured Americans: 38.8.
Year: 2000;
Non-elderly Uninsured Americans: 38.4.
Year: 2001;
Non-elderly Uninsured Americans: 39.8.
Year: 2002;
Non-elderly Uninsured Americans: 42.0.
Year: 2003;
Non-elderly Uninsured Americans: 43.4.
Year: 2004;
Non-elderly Uninsured Americans: 43.5.
Year: 2005;
Non-elderly Uninsured Americans: 44.8.
Year: 2006;
Non-elderly Uninsured Americans: 47.0.
Source: U.S. Census Bureau, Current Population Survey, 2000-2007 Annual
Social and Economic Supplements.
Notes: Estimates for 1999-2005 were revised to reflect the results of a
change to the survey process that assigns insurance coverage to
dependents.
[End of graph]
Percentage of Firms Offering Health Benefits, 2000-2006:
[See PDF for image] - graphic text.
This is a bar graph of the percentage of firms offering health benefits
from 200 through 2006.
2000: 69 percent;
2001: 68 percent;
2002: 66 percent;
2003: 66 percent;
2004: 63 percent;
2005: 63 percent;
2005: 60 percent;
2006: 61 percent.
Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits.
Notes: The survey results are based on a sample of 3,159 firms and
include both small firms (3-199 workers) and large firms (200+
workers). While the year to year changes in the percentage of firms
offering benefits have not been statistically significant, the
cumulative effect has been a large and statistically significant change
over this 6 year period.
{End of graph]
Growth in Health Care Spending: Health Care Spending as a Percentage of
GDP:
[See PDF for image] - graphic text.
This is a bar graph of the percent of health care spending as a
percentage of GDP with the vertical axis representing percent from 0 to
25 and the horizontal axis representing years 1975, 1985, 1995, 2005,
and 2015.
Year: 1975;
Health care spending: 8.1.
Year: 1985;
Health care spending: 10.4.
Year: 1995;
Health care spending: 13.7.
Year: 2005;
Health care spending: 16.0.
Year: 2015;
Health care spending: 19.2.
Source: The Centers for Medicare & Medicaid Services, Office of the
Actuary.
Note: The figure for 2015 is projected.
[End of graph]
Growth in Health Care Spending: Cumulative Growth in Real Health Care
Spending Per Capita and Real GDP Per Capita, 1960-2005:
[See PDF for image] - graphic text.
This is a line graph with two lines (Real health care spending per
capita and Real GDP per capita) with the vertical axis representing
percentage from 0 to 800 and the horizontal axis representing years
1960 through 2005. The Real health care spending per capita line
indicates an average annual growth rate of 4.9%, and the Real GDP per
capita line indicates an annual growth rate of 2.3%.
Source: GAO analysis of data from the Centers for Medicare & Medicaid
Services, Office of the Actuary, and the Bureau of Economic Analysis.
Note: The most current data available on health care spending per
capita are for 2005.
[End of graph]
Growth in Health Insurance Premiums for Employer-Sponsored Health
Insurance: Cumulative Growth in Health Insurance Premiums, Overall
Inflation, and Workers’ Earnings, 2000-2006:
[See PDF for image] - graphic text.
This is a line graph with three lines (health insurance premiums,
worker's earnings, and overall inflation) with the vertical axis
representing cumulative percentage from 0 to 120 and the horizontal
axis representing years 2000 through 2006. The health insurance
premiums line indicates a change from 0 to 101.8% during the time
period. The worker's earnings indicates a change from 0 to 101.8%
during the time period.The overall inflation indicates a change from 0
to 21.2% during the time period.
[End of chart]
Where the United States Ranks on Selected Health Outcome Indicators:
Outcome: Life expectancy at birth (U.S. = 77.8 years in 2004); Rank: 23
out of 30 in 2004.
Outcome: Infant Mortality (U.S. = 6.8 deaths in 2004); Rank: 26 out of
30 in 2004.
Outcome: Potential Years of Life Lost( U.S. = 5,066 in 2002); Rank: 23
out of 26 in 2002.
Source: OECD Health Data 2006 and 2007.
Notes: Data are the most recent available for all countries. Life
expectancy at birth for the total population is estimated by the OECD
Secretariat for all countries, as the unweighted average of the life
expectancy of men and women. Infant mortality is measured as the number
of deaths per 1,000 live births. Potential years of life lost (PYLL) is
the sum of the years of life lost prior to age 70, given current age-
specific death rates (e.g., a death at 5 years of age is counted as 65
years of PYLL).
[End of table]
Key Dates Highlight Long Term Challenges of the Medicare Program:
Date: 2007;
Event: Medicare Part A outlays exceed cash income.
Date: 2007;
Event: Estimated trigger date for “Medicare funding warning.”
Date: 2013;
Event: Projected date that annual “general revenue funding” for Part B
will exceed 45 percent of total Medicare outlays.
Date: 2019;
Event: Part A trust fund exhausted, annual income sufficient to pay about 80%
of promised Part A benefits.
Source: 2007 Annual Report of The Boards of Trustees of The Federal
Hospital Insurance and Federal Supplementary Medical Insurance Trust
Funds(Washington, DC, April 2007).
[End of table]
Issues to Consider in Examining Our Health Care System:
* The public needs to be educated about the differences between wants,
needs, affordability, and sustainability at both the individual and
aggregate level.
* Ideally, health care reform proposals will:
- Align Incentives for providers and consumers to make prudent
decisions about the use of medical services;
- Foster Transparency with respect to the value and costs of care, and;
- Ensure Accountability from insurers and providers to meet standards
for appropriate use and quality;
* Ultimately, we need to address four key dimensions: access, cost,
quality,and personal responsibility.
Selected Potential Health Care Reform Approaches:
Reform Approach: Revise the government’s payment systems and leverage
its purchasing authority to foster value-based purchasing for health
care products and services;
Short-term action: [check];
Long-term action: [empty].
Reform Approach: Consider additional flexibility for states to serve as
models for possible health care reforms;
Short-term action: [check];
Long-term action: [empty].
Reform Approach: Consider limiting direct advertising and allowing
limited importation of prescription drugs;
Short-term action: [check];
Long-term action: [empty].
Reform Approach: Foster more transparency in connection with health
care costs and outcomes;
Short-term action: [check];
Long-term action: [empty].
Reform Approach: Create incentives that encourage physicians to utilize
prescription drugs and other health care products and services
economically and efficiently.
Short-term action: [check];
Long-term action: [empty].
Reform Approach: Foster the use of information technology to increase
consistency, transparency, and accountability in health care;
Short-term action: [check];
Long-term action: [empty].
Reform Approach: Encourage case management approaches for people with
chronic and expensive conditions to improve the quality and efficiency
of care delivered and avoid inappropriate care.
Short-term action: [check];
Long-term action: [empty].
Reform Approach: Reexamine the design and operational structure of the
nation’s health care entitlement programs—Medicare and Medicaid,
including exploring more income-related approaches;
Short-term action: [check];
Long-term action: [check].
Reform Approach: Revise certain federal tax preferences for health care
to encourage more efficient use of health care products and services;
Short-term action: [check];
Long-term action: [check].
Reform Approach: Foster more preventative care and wellness services
and capabilities, including fighting obesity and encouraging better
nutrition;
Short-term action: [check];
Long-term action: [check].
Reform Approach: Promote more personal responsibility in connection
with health care;
Short-term action: [check];
Long-term action: [check].
Reform Approach: Limit spending growth for government-sponsored health
care programs (e.g., percentage of the budget and/or economy);
Short-term action: [empty];
Long-term action: [check].
Reform Approach: Develop a core set of basic and essential services.
Create insurance pools for alternative levels of coverage, as
necessary;
Short-term action: [empty];
Long-term action: [check].
Reform Approach: Develop a set of evidence-based national practice
standards to help avoid unnecessary care, improve outcomes, and reduce
litigation;
Short-term action: [empty];
Long-term action: [check].
Reform Approach: Pursue multinational approaches to investing in health
care R&D;
Short-term action: [empty];
Long-term action: [check].
[End of table]
Three Key Illnesses:
* Myopia;
* Tunnel Vision;
* Self-Centeredness.
Four National Deficits:
* Budget;
* Balance of Payments;
* Savings;
* Leadership.
Five Leadership Attributes Needed for These Challenging and Changing
Times:
* Courage;
* Integrity;
* Creativity:
* Stewardship:
* Partnership.
[End of presentation]
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Copyright:
This is a work of the U.S. government and is not subject to copyright
protection in the United States. The published product may be
reproduced and distributed in its entirety without further permission
from GAO. However, because this work may contain copyrighted images or
other material, permission from the copyright holder may be necessary
if you wish to reproduce this material separately.