Health costs poised to consume U.S. economy?

A report issued Tuesday by the nonpartisan Congressional Budget Office warns that Medicare and Medicaid are on track to explode the federal budget, growing from 4 percent of the gross domestic product (GDP) today to 12 percent of GDP in 2025. “Without changes in federal law, federal spending on Medicare and Medicaid is on a path that cannot be sustained,” the study says. That’s bad enough, but the CBO study’s look at the nation’s overall health-care costs is enough to give us all heartburn. It suggests that if those costs continue to rise unabated, our grandchildren and great-grandchildren may not be able to afford to do much at all except go to the doctor. Total spending on health care, it projects, will rise from an already hefty 16 percent of GDP to a full 50 percent of the nation's economy within 75 years – unless changes are made in federal law.

How can we slow that rise? The study suggests “generating more information about the relative effectiveness of medical treatments and changing the incentives for providers and consumers in the supply and demand of health care.” Simply stated, we still do not know nearly as much as we should about what works and what doesn’t. The current system encourages use of the most expensive treatments, even if they’re not particularly effective, the CBO says. “Comparative effectiveness” research should develop ways to target the most cost-effective options and change the behavior of doctors and patients through financial and other inducements.

But here’s the report’s kicker: The best chance for slowing the growth of health care costs, the CBO admits, comes not from the federal government, which seems unlikely to adopt real reforms, but from the private sector and state governments, which “would almost certainly have more flexibility to respond to (economic) pressure …” Changes there would then “exert some downward pressure” on federal programs. In other words, don’t look to Washington for a solution. It’s going to have to come from the free market, and from the states, those “laboratories of democracy.” That’s why initiatives such as Ohio’s new, bipartisan health-care reform task force, which is studying innovative ways to cover the uninsured and solve other aspects of this growing crisis, are so important.