V I E W P O I N T

The Need for Comprehensive Health Care Reform

The persistent and rapidly rising cost of health care is perhaps the most serious domestic economic crisis facing our nation today. The Congressional Budget office, in a November 2007 report, cited mounting health care costs as the nation's central long-term fiscal challenge. For most of the past forty years health care spending has significantly exceeded the growth in per capita gross domestic product. Health care as a share of GDP has grown from about 5 percent in 1965, to about 16 percent today, and under current projections, absent system-wide changes to health care financing and delivery, will rise to one fourth of our nation's total GDP by 2025.

Mounting health costs that persistently exceed personal income and business growth place a growing economic burden on American workers and their employers. According to a study from the University of Minnesota , the amount families pay for employer provided health insurance increased 30 percent nationally between 2001 and 2005 while income increased just 3 percent over the same period. The employer share of that cost increased 28 percent during the same period. While 47 million Americans are now uninsured, the percentage of workers nationwide with employer provided health insurance declined from about 51 percent in 2000 to about 49 percent in 2006.

An even more concerning trend for seniors and Medicare is the fact that the percentage of employers who offer retiree health coverage has sharply declined in recent years. At least one third of today's retirees rely on this kind of coverage to supplement the many costs not covered by Medicare. According to the Kaiser Family Foundation, the percentage of private sector employers with 200 or more workers offering retiree health benefits dropped from 66 percent in 1988 to 38 percent in 2003. Among large employers who still offer retiree coverage, about half have imposed caps on future obligations to retirees' plans.

The impact of these private sector trends on Medicare is enormous. Because Medicare beneficiaries are served by the same hospitals and health care providers that serve all other Americans, over the long term, growth in Medicare spending per beneficiary has averaged about the same as per capita growth in private spending. Looking forward, the Medicare Actuaries long-range projections assume that Medicare spending will increase at the same rate as overall health spending per capita.

According to the 2008 Medicare Trustee's Report, costs for the combined Medicare Trust funds are expected to grow from about 3.2 percent of GDP today, to about 10.8 percent of GDP in 2082. While, according to the Congressional Budget Office (CBO), about one-third of the future growth in Medicare may be attributed to the growth of the senior population, the overwhelming majority is due to system-wide excess cost growth related to new technologies as well as a number of gaps and inefficiencies throughout the broader spectrum of health care delivery. Conversely, if projected overall national health spending could even moderately be restrained, the savings to Medicare over time would be substantial. Because various changes adopted under the Medicare Modernization Act of 2003 have shifted a greater share of future cost growth to beneficiaries, data from the Medicare Trustees indicate that by 2025about one-half of the average Social Security benefit will be consumed by out-of-pocket health care costs.

Many policy experts have argued that the rapid escalation in health costs also places U.S. business at a distinct disadvantage with global competitors. Because most U.S. workers and their families obtain health coverage through their workplace, these cost are passed on to consumers of U.S. goods. The Organisation for Economic Cooperation and Development found that, in 2005, the United States spent nearly twice as much per capita on health care as global competitors such as France , Canada , and Germany , and nearly two and one-half times more per capita than Italy , Japan and the United Kingdom .

While the United States spends substantially more per capita than other developed nations, it is not at all clear that quality of care or quality health outcomes are superior as a result. Most industrialized nations have adopted varying forms of broad social insurance systems to ensure greater efficiency and universal or near universal coverage, while in the United States , where vast numbers remain uninsured, the social insurance model has been applied only to coverage of older and disabled persons through Medicare.

Under current trends, health care will ultimately become prohibitively expensive to all but the wealthiest few in our nation, and according to the Congressional Budget Office (CBO), by 2082 total national health care expenditures could equal our entire national economic output. President-elect Obama proposed a significant reform of the health care system as a major priority during the Presidential campaign, and key Members of Congress have offered their own proposals. These range from modest private sector adjustments and incentives, to the creation of broadly integrated public-private systems under which most, if not all, individuals and businesses are given incentives or requirements to participate.

The National Committee calls upon the new Administration and Congress, as a top priority, to commence a broad review of our nation's health care system, leading to the early consideration and adoption of system-wide reforms in health care financing and delivery. Such a process should adhere to the following principles:

• Reform must comprehensively and effectively address long-range cost containment across all public and private health care systems;
  
• Reformers should strive for universal access to affordable, quality health coverage for all Americans;
  
• Traditional Medicare and its social insurance structure should be enhanced and strengthened as it has proven its value in providing affordable coverage for our nation's most vulnerable populations for more than 40 years;
  
• Social Insurance models such as traditional Medicare should be considered as a means to broaden coverage to uninsured and underinsured populations. Current means-testing under Medicare should be repealed;
  
• Reforms must not seek to contain costs by shifting them from public programs to individual beneficiaries as such changes are unsustainable. Nearly two-thirds of older households have incomes under $20,000, and they are already spending 30-50% of their incomes on health care;
  
• Congress must repeal provisions of the Medicare Modernization Act of 2003 - particularly the overpayments to private Medicare plans - that add costs and complexity and undermine Medicare's social insurance base;
  
• Congress must allow the Centers for Medicare and Medicaid Services (CMS) the authority to negotiate directly with pharmaceutical manufacturers for lower prescription drug prices. This change alone could potentially save hundreds of billions of dollars for Medicare and its beneficiaries over the near term.
  
• Reforms must address improved approaches to better coordination of care for the most chronically ill of all ages – the greatest source of health care spending in our nation.

Government Relations and Policy, December 2008

The National Committee is a nonprofit, nonpartisan organization that acts in the interests of its membership through advocacy, education, services, grassroots efforts and the leadership of the board of directors and professional staff. The work of the National Committee is directed toward developing a secure retirement for all Americans.