In the Congressional Budget Office's latest long-term budget outlook, the nonpartisan federal agency continued to hammer the message that the country's aging population and rising healthcare costs mean that lawmakers and the country as a whole have difficult choices to make in the days ahead.
As with other economic outlooks released this year, CBO offered two fiscal scenarios, one based on current law – which means that the sequestration cuts and the cuts to physicians' Medicare payments go through as scheduled – and the other an alternative representing fiscal policies that are now or have recently been in place.
[See also: CBO budget report shows impact of healthcare costs and aging population.]
Under the extended baseline scenario based on current law, federal debt would slowly decline from its current high relative to gross domestic product (GDP) and revenues would slowly rise, but under the alternative scenario – under which lawmakers would act to prevent scheduled cuts to take place, for example – federal debt would grow to exceed 90 percent of GDP in 2022 and would approach 200 percent in 2037.
"It is not possible both to keep taxes at their historical average share of GDP and to keep the laws unchanged for Social Security, Medicare and Medicaid," Douglas Elmendorf, CBO director, told the House Budget Committee Wednesday during a hearing about the CBO's budget outlook that was broadcast live on the Internet. "The reason we can't repeat that historical combination of policies is that the aging of the population and the rising cost for healthcare have made those large entitlement programs much more expensive than they used to be."
If current law remains in place, CBO predicts that spending on the major healthcare programs, such as Medicare and Medicaid, will grow from more than 5 percent of GDP today to almost 10 percent in 2037, and is expected to increase thereafter.
"The report is sobering and the warnings are dire," said Rep. Paul Ryan (R-Wis.), chair of the House Budget Committee.
"We still have a window of opportunity that will require us to come together to solve this problem," he said in his introductory remarks. "CBO has presented us with their analysis, but it is incumbent upon policymakers to respond to their findings with principled solutions. It's our moral responsibility to work together to chart a sustainably fiscal path, to revitalize economic growth and to expand opportunity now and for generations to come."
As Elmendorf told the committee, keeping the federal deficit and debt no larger than the CBO is projecting under current law will not be easy.
"…(T)he path of debt under current law will still leave debt at a historically high level relative to GDP and yet achieving even that path will require very large changes in current policies," he stressed. "You and your colleagues and all of us as American citizens face hard choices."
As various members of the committee noted that the largest drivers of expense in the budget outlook are the healthcare entitlement programs, it was obvious that some of those hard choices will involve healthcare programs, such as Medicare and Medicaid, pointed out Rep. Chris Van Hollen (D-Md.). "Given the fact that healthcare costs are increasing rapidly, especially Medicare, it would mean that we would have to come up with another way of dealing with Medicare costs, is that right?" he asked Elmendorf, who responded in the affirmative.
Rep. Suzanne Bonamici (D-Ore.) wondered if sufficient savings could be found if more states implemented care coordination programs such as ones being tested in her state.
"I think the ferment of experimentation is a very positive factor," Elmendorf responded, "but it is also true that a number of experiments that have been tired have not worked as well as advocates hoped and even those that have worked have proven in some cases more difficult to expand across different provider settings, across different states' healthcare systems."
"We (CBO) think that will have some positive effect," he added, "but how large the effect will be and just what arrangements will turn out to be most effective, we don't know yet."
The need to come up with a solution soon was an issue raised by a number of the committee members, but what that solution should be was not a matter of agreement among the members.
"We have to deal with these things and we have to deal with them quickly," warned Rep. John Campbell (R-Calif.). "We don't want to have to make the rapid changes that Europe did. … We need to get on this right away so we have a slower glide path to correcting these problems."