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236CG entitled 'America’s Fiscal Future and Retirement Security'
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United States Government Accountability Office:
GAO:
America’s Fiscal Future and Retirement Security:
The Honorable David M. Walker:
Comptroller General of the United
States:
The American Council of Life Insurers:
CEO Capital Forum:
Washington, D.C.:
October 23, 2007:
GAO-08-236CG:
The Case for Change:
The federal government is on a “burning platform,” and the status quo
way of doing business is unacceptable for a variety of reasons,
including:
* Past fiscal trends and significant long-range challenges;
* Selected trends and challenges having no boundaries;
* Additional resource demands due to Iraq, Afghanistan, incremental
homeland security needs, and recent natural disasters in the United
States;
* Numerous government performance/accountability and high risk
challenges;
* Outdated federal organizational structures, policies, and practices;
* Rising public expectations for demonstrable results and enhanced
responsiveness.
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]
Potential Fiscal Outcomes Under Alternative Simulation; 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 2006, 2015, 2030, and 2040.
Source: GAO’s August 2007 analysis.
Notes: AMT exemption amount is retained at the 2006 level through 2017
and expiring tax provisions are extended. After 2017, revenue as a
share of GDP returns to its historical level of 18.3 percent of GDP
plus expected revenues from deferred taxes, i.e. taxes on withdrawals
from retirement accounts. Medicare spending is based on the Trustees
April 2007 projections adjusted for the Centers for Medicare and
Medicaid Services alternative assumption that physician payments are
not reduced as specified under current law.
[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]
Social Security and Medicare’s Hospital Insurance Trust Funds Face Cash
Deficits:
[See PDF for image] - graphic text.
This is a bar graph with vertical bars representing the Medicare HI
Cash Flow and Social Security Cash Flow for each fiscal year. The bars
indicate a Medicare HI cash deficit beginning in 2007 and a Social Security
cash deficit in 2017. The vertical axis of the graph depicts billions of
2007 dollars from -900 to +200. The horizontal axis depicts fiscal years
from 2005 through 2040.
Source: GAO analysis of data from the Office of the Chief Actuary,
Social Security Administration and Office of the Actuary, Centers for
Medicare and Medicaid Services.
Note: Projections based on the intermediate assumptions of the 2007
Trustees’ Reports. The CPI is used to adjust from current to constant
dollars.
[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]
State and Local Governments Face Increasing Fiscal Challenges:
[See PDF for image] - graphic text.
This is a line graph with two lines (Operating Surplus/Deficit Measure
and Net-lending/Net-borrowing). The vertical axis represents Percent of
GDP from -6 to +2 and the horizontal axis represents fiscal years 1980
through 2050.
Sources: Historical data from National Income and Product Accounts.
Historical data from 1980–2006, GAO projections from 2007–2050 using
many CBO projections and assumptions, particularly for next 10 years.
[End of graph]
State and Local Fiscal Challenges Add to the Federal Government’s
Fiscal Challenge:
[See PDF for image] - graphic text.
This is a line graph with two lines (Federal Surplus/Deficit and
Combined Surplus/Deficit). The vertical axis represents Percent of GDP
from -20 to +5 and the horizontal axis represents fiscal years 2000
through 2050.
Source: Historical data from National Income and Product Accounts, GAO
Analysis.
Note: Historical data from 2000–2006, projections from 2007–2050; state
and local balance measure is similar to the federal unified budget
measure. Federal Simulation Assumptions: Discretionary spending grows
with GDP after 2007. AMT exemption amount is retained at the 2006 level
through 2017 and expiring tax provisions are extended. After 2017,
revenue as a share of GDP returns to its historical level of 18.3
percent of GDP plus expected revenues from deferred taxes, i.e. taxes
on withdrawals from retirement accounts. Medicare spending is based on
the Trustees’ April 2007 projections adjusted for the Centers for
Medicare and Medicaid Services’ alternative assumption that physician
payments are not reduced as specified under current law.
[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.
The Way Forward: Improve Financial Reporting, Public Education, and
Performance Metrics:
* Improve transparency & completeness of President’s budget proposal:
- Return to 10-year estimates in budget both for current policies and
programs and for policy proposals;
- Include in the budget estimates of long-term cost of policy proposals
and impact on total fiscal exposures;
- Improve transparency of tax expenditures;
* Consider requiring President’s budget to specify & explain a fiscal
goal and a path to that goal within 10-year window—or justify an
alternative deadline;
* Require annual OMB report on existing fiscal exposures [liabilities,
obligations, explicit & implied commitments];
* Require enhanced financial statement presentation and preparation of
summary annual report that is both useful and used;
* Increase information on long-range fiscal sustainability issues in
Congressional Budget Resolution & Budget Process;
* Develop key national (outcome-based) indicators (e.g. economic,
security, social, environmental) to chart the nation’s posture,
progress, and position relative to the other major industrial
countries.
The Way Forward: Strengthen Budget and Legislative Processes and
Controls:
* Restore discretionary spending caps & PAYGO rules on both spending
and tax sides of the ledger;
* Develop mandatory spending triggers [with specific defaults], and
other action-forcing provisions (e.g., sunsets) for both direct
spending programs and tax preferences;
* Develop, impose & enforce modified rules for selected items (e.g.,
earmarks, emergency designations, and use of supplementals);
* Require long-term cost estimates (e.g. present value) for any
legislative debate on all major tax and spending bills, including
entitlement programs. Cost estimates should usually assume no sunset;
* Extend accrual budgeting to insurance & federal employee pensions;
develop techniques for extending to retiree health & environmental
liabilities;
* Consider biennial budgeting;
* Consider expedited line item rescissions from the President that
would only require a majority vote to override the proposed
rescission(s).
The Way Forward: Fundamentally Reexamine & Transform:
* Restructure existing entitlement programs;
* Reexamine and restructure the base of all other spending;
* Review & revise existing tax policy, including tax preferences and
enforcement programs;
* Expand scrutiny of all proposed new programs, policies, or
activities;
* Reengineer internal agency structures and processes, including more
emphasis on long-term planning, integrating federal activities, and
partnering with others both domestically and internationally;
* Strengthen and systematize Congressional oversight processes;
* Increase transparency associated with government contracts and other
selected items;
* Consider a capable, credible, bi-partisan budget, entitlement, and
tax reform commission.
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.
Serving The Congress And The Nation Gao's Strategic Plan Framework
Mission:
GAO exists to support the Congress in meeting its constitutional
responsibilities and to help improve the performance and ensure the
accountability of the federal government for the benefit of the
American people.
Themes:
* Changing Security Threats;
* Sustainability Concerns;
* Economic Growth & Competitiveness;
* Global Interdependency;
* Societal Change;
* Quality of Life;
* Science & Technology.
Goals and Objectives:
Provide Timely, Quality Service to the Congress and the Federal
Government to Address Current and Emerging Challenges to the Well-being
and Financial Security of the American People related to:
* Health care needs;
* Lifelong learning;
* Work benefits and protection;
* Financial security;
* Effective system of justice;
* Viable communities;
* Natural resources use and environmental protection;
* Physical infrastructure.
Respond to Changing Security Threats and the Challenges of Global
Interdependence involving:
* Homeland security;
* Military capabilities and readiness;
* Advancement of U.S. interests;
* Global market forces.
Help Transform the Federal Government's Role and How It Does Business
to Meet Twenty-first Century Challenges by assessing:
* Roles in achieving federal objectives;
* Government transformation;
* Key management challenges and program risks;
* Fiscal position and financing of the government.
Maximize the Value of GAO by Being a Model Federal Agency and a World-
Class Professional Services Organization in the areas of:
* Client and customer satisfaction;
* Strategic leadership;
* Institutional knowledge and experience;
* Process improvement
* Employer of choice.
Core Values:
* Accountability;
* Integrity;
* Reliability.
Source: GAO Strategic Plan 2007-2012.
Selected Sustainability Challenges:
* Fiscal Deficits and Debt Burdens;
* Health Care Quality, Access, and Costs;
* Defense and Homeland Security Strategies;
* Social Insurance Commitments;
* Tax Gaps and Policies;
* Energy, Environment, and Resource Protection;
* Immigration Policies;
* Infrastructure Needs,
Twenty-first Century Challenges Report:
* Provides background, framework, and questions to assist in
reexamining the base.
* Covers entitlements & other mandatory spending, discretionary
spending, and tax policies and programs.
* Based on GAO’s work for the Congress.
{Source: GAO.]
Twelve Reexamination Area:
Mission Areas:
* Defense;
* Education & Employment;
* Financial Regulation & Housing;
* Health Care;
* Homeland Security;
* International Affairs;
* Natural Resources, Energy & Environment;
* Retirement & Disability;
* Science & Technology;
* Transportation.
Crosscutting Areas:
* Improving Governance;
* Reexamining the Tax System.
Financial Regulation Challenges for the 21st Century:
Increased global interdependence and rapid technological advancement
in the financial services industry pose significant challenges to U.S.
regulatory institutions:
* Globalization has become increasingly prevalent as technology allows
the quick and easy movement of money around the world, challenging
regulators whose authority is defined by national borders:
* The financial services sector has been and continues to be one of
the most technologically sophisticated, whether in adapting technology
to new uses or providing incentives to develop state-of-the-art
products to solve a range of risk management problems.
Challenges Facing the Federal Financial Regulatory Structure:
The present federal financial regulatory structure evolved largely as a
result of periodic/ad hoc responses to crises and financial panics. In
the last few decades however, the financial services industry itself
has evolved, becoming more:
* Concentrated;
* Complex;
* Consolidated across sectors.
As a result, financial regulators must become more astute in seeing the
total risk exposure at large conglomerate firms and identifying and
preemptively responding to risks that cross industry lines.
Illustrative 21st Century Questions: Financial Regulation:
Considerations for the federal financial regulatory structure include:
* Consolidating various federal regulatory agencies to:
- Promote a more coherent and integrated structure;
- Specify goals more clearly;
- Provide sufficient resources, flexibilities, and incentives to
prospectively target resources to risks.
* Examining the extent to which specialized or consolidated regulators
effectively address companywide and systemic risks that arise from the
potential failure of large, diversified financial firms.
* Exploring what role the federal government should play in improving
consumer financial literacy, where current information gaps are, and
whether and to what extent disclosures can be improved to protect
consumers.
Why Improving Consumer Financial Literacy is Important:
Financial literacy is important for three key reasons:
* The number and complexity of financial products have grown
tremendously, and consumers face an increasing array of options for
managing their personal finances.
* Technological advances have increased the capacity for targeted
marketing to consumers, which may increase some consumers’
vulnerability to fraudulent financial products.
* Workers today are increasingly responsible for managing their own
retirement savings—yet at the same time, the nation’s personal saving
rate has fallen dramatically in recent decades, and household debt
hovers at record high levels.
Ensuring that Americans have the knowledge and skills to manage their
money wisely is a key element in improving the economic health of our
nation in current and future generations.
Key Elements for Economic Security in Retirement:
* Adequate retirement income:
- Savings;
- Social Security;
- Pensions;
- Earnings from continued employment (e.g., part-time).
* Affordable health care:
- Medicare;
- Retiree health care.
* Long-term care (a hybrid).
* Major Players:
- Employers;
- Government;
- Individuals;
- Family;
- Community.
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 Has Decline:
[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 2006.
Source: Bureau of Economic Analysis.
[End of graph]
Key Dates Highlight Long Term Challenges of the Social Security
System:
OASI:
Date: 2009;
Event: Cash surplus begins to decline;
Date: 2018;
Event: Annual benefit costs exceed cash revenue from taxes;
Date: 2028;
Event: Trust fund ceases to grow because even taxes plus interest fall
short of benefits;
Date: 2042;
Event: Trust fund exhausted.
DI:
Date: 2005;
Event: Annual benefit costs exceed cash revenue from taxes;
Date: 2013;
Event: Trust fund ceases to grow because even taxes plus interest fall
short of benefits;
Date: 2026;
Event: Trust fund exhausted.
OASDI:
Date: 2009;
Event: Cash surplus begins to decline;
Date: 2017;
Event: Annual benefit costs exceed cash revenue from taxes;
Date: 2027;
Event: Trust fund ceases to grow because even taxes plus interest fall
short of benefits;
Date: 2041;
Event: Trust fund exhausted.
Source: Social Security Administration, The 2007 Annual Report of the
Board of Trustees of the Federal Old-Age and Survivors Insurance and
Disability Insurance Trust Funds(Washington, DC: April 2007).
[End of table]
Possible Way Forward on Social Security Reform:
Make little or no changes to those who are near retirement or already
retired and make a number of adjustments that would affect younger
workers:
* Phase-in an increase in the normal retirement age and index it to
life expectancy;
* Consider phasing-in an increase in the early retirement age and index
it to life expectancy with a modified disability access provision;
* Modify income replacement and/or indexing formulas for middle and
upper income earners;
* Strengthen the minimum benefit;
* Consider a modest adjustment to the COLA formula;
* Increase the taxable wage base, if necessary;
* Consider supplemental individual accounts and mandatory individual
savings on a payroll deduction basis (e.g., a minimum 2 percent payroll
contribution and a program designed much like the Federal Thrift
Savings Plan with a real trust fund and real investments).
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 The
Federal Hospital Insurance and Federal Supplementary Medical Insurance
Trust Funds(Washington, DC, April 2007).
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]
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: Health Care Spending as a Percentage of
GDP: 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]
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]
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]
Moving the Debate Forward:
The Sooner We Get Started, the Better:
* The miracle of compounding is currently working against us;
* Less change would be needed, and there would be more time to make
adjustments:
* Our demographic changes will serve to make reform more difficult over
time.
Need Public Education, Discussion, and Debate:
* The role of government in the 21st Century;
* Which programs and policies should be changed and how;
* How government should be financed.
These Challenges Go Beyond Numbers and Dollars—It’s About:
Values and People.
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.
Three Key Groups That Need to Increase Their Influence and Involvement:
* The Business and Professional Community;
* Young Americans:
* The Media
[End of presentation]
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