Chairman Kohl, Senator Corker, Members of the Committee, thank you for inviting me here today to discuss changes for Medicare and the health care system. The fiscal challenges we face as a nation are immense, and the single largest cause in the long-term is growing health care costs, so this is a very important hearing and we thank you for holding it.

I am Maya MacGuineas, president of the bipartisan Committee for a Responsible Federal Budget and the director of the Fiscal Policy Program at the New America Foundation. Our co-chairs are Bill Frenzel, Charlie Stenholm, Jim Nussle and Tim Penny, and the board is made up of past directors of the Office of Management and Budget, the Congressional Budget Office, the Federal Reserve System, the Treasury Department, and the Budget Committees.

The fiscal problems we face as a nation are severe. What was once a long-term problem has become far more immediate due to the huge run up in our debt from running deficits over the past ten years, the economic downturn, and the policies of responding to the downturn. What is even more worrying than the current high debt level, is the projections that it will grow as a share of the economy--indefinitely. The debt is already presumably a drag on economic growth, and without changes, it will at some point result in a fiscal crisis.

Going forward, the growth of deficits will be driven by the aging of society and growing health care costs. The Congressional Budget Office projects that federal spending is set to grow to unprecedented and unaffordable heights in coming years, with health care costs and aging driving increases in spending on our major entitlement programs: Medicare, Medicaid, and Social Security. By 2035, health care cost growth will account for 36 percent of the increases in major entitlement program spending, and 56 percent of the increases by 2085, with aging accounting for the remainder.

Even under the optimistic scenario, where all the savings from the recent health care reforms stay in place through 2030 and reductions in Medicare payments to physicians, per the Sustainable Growth Rate, takes effect, Medicare costs will still grow to over 4 percent of GDP by 2021 and to over 6 percent of GDP in the 2030s.2 According to the Congressional Budget Office’s Alternative Fiscal Scenario, which assumes that various cost-controls put in place in the Affordable Care Act do not stick past 2021 and that lawmakers waive scheduled cuts to physician payments, Medicare costs are set to increase from about 3.7% of the economy in 2011, to 4.3 percent of GDP by 2021, and to over 7 percent of GDP in 2030s.

I would like to make four main points in my remarks today:

• There are many areas of overlap between a variety of fiscal plans on ways to save money in health care, and as many of them as possible should be implemented as quickly as possible (see CRFB’s table of overlapping polices here).
• No matter how large a package of health care reforms we manage to pass, in all likelihood, more will have to be done later.
• We should put in place policies likely to generate savings even if they don’t “score” well, or don’t generate large savings until beyond a ten-year window.
• We should end the open-ended nature of spending on health care and include it in a budget, as we do other parts of federal spending.

Click here to read the full testimony on CRFB.org.

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