How expensive is proposed healthcare legislation?

It doesn't rein in the government's runaway costs for Medicare and Medicaid,says the director of the Congressional Budget Office.

Kevin Lamarque/Reuters
President Obama speaks about healthcare reform from the Rose Garden of the White House on Friday.

The steadily rising cost of healthcare may be the biggest single fiscal problem facing the US government today.

The stimulus bill? Bank and auto bailouts?

Those are all big expenses, to be sure, but they are one-time payouts limited in their long-term effect compared with the big federal health entitlement programs of Medicare and Medicaid.

This is one of the reasons it's significant that Douglas Elmendorf, director of the Congressional Budget Office (CBO), told the Senate on Thursday that proposed health care legislation does not rein in the government's runaway costs for medical programs.

"In the legislation that has been reported, we do not see the sort of fundamental changes that would be necessary to reduce the trajectory of federal health spending by a significant amount," Mr. Elmendorf told the Senate Budget Committee.

On Friday, a key House committee passed its chamber's version of health-reform legislation, but critics complained that it, too, would do little or nothing to slow US health payouts. Republicans and fiscally conservative Democrats appear to have seized on the cost issue, either to slow the movement of the health bill or curb its scale and price.

"Instead of rushing through one expensive proposal after another, we should take the time we need to get things right," said Senate Republican leader Sen. Mitch McConnell of Kentucky.

Slowing the rate of growth for healthcare spending is one of President Obama's goals for healthcare. The other is expanding health coverage to millions who now lack it.

Healthcare costs are not exactly a new problem for Uncle Sam, of course. Spending on Medicare and Medicaid has been growing faster than the economy for decades.

Unless things change, that will continue in the future. Measured relative to the nation's gross domestic product, almost all the projected growth in the federal deficit will be caused by rising interest payments on the national debt and increased Medicare, Medicaid, and Social Security costs, according to CBO's just-updated long-term budget outlook.

Medicare and Medicaid are the monsters in that list. Absent changes in federal law, their cost will grow from 5 percent of US GDP today to almost 10 percent by 2035.

By 2080, the two programs would be about the same size, relative to GDP, as the entire US budget is today, projects CBO.

And it's not the retirement of a flood of baby boomers that is pushing up that spending. Well, that is part of it, but not the main part.

According to CBO's recent budget update, if current law is not changed, 56 percent of the cost growth in Medicare and Medicaid over the next 25 years will be attributable to what it delicately calls "excess cost growth."

That is, more than half of rising health costs are projected to be the result of an increase in medical spending per person, over and above normal inflation. This, in turn, is mainly the result of new medical technology, drugs, and other health-related innovations.

"Excess cost growth is the primary factor driving the growth of federal spending on Medicare and Medicaid, even over the intermediate term," concludes CBO.

As to the health-reform bills currently being considered in Congress, their effect on costs may not be quite as bad as advertised, say supporters.

CBO's cost predictions do not take into account savings from increased efficiencies included in the bills, such as the increased computerization of medical records, they point out.

"Comprehensive health care reform means finding ways to deliver health care more efficiently, and that will help us restrain the rate of growth of government spending over the long run. We can't start that soon enough," said Alice Rivlin, a senior fellow at the Brookings Institution and former CBO chief, in an analysis posted on the Brookings website Thursday.

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