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577CG entitled 'Fiscal and Health Care Challenges' which was released 
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United States: 

Government Accountability Office: 

Fiscal And Health Care Challenges: 

The Honorable David M. Walker: 
Comptroller General of the United States: 

Federation of American Hospitals: 
Annual Public Policy Conference: 
March 5, 2007: 

GAO revised this document on March 13, 2007, to clarify that the 2006 
figures are final and not preliminary (slide 2) and that note "a" 
relates to the unified deficit and not to the  
on-budget deficit (slide 3). 

Composition of Federal Spending: 

[See PDF for image] - graphic text 
	
3 pie charts with 5 items each. 
	
1966: 	
Defense: 43.0%; 
Social Security: 15.0%; 
Medicare & Medicaid: 1.0%; 
Net interest: 7.0%; 
All other spending: 34.0%. 

1986: 
Defense: 28.0%; 
Social Security: 20.0%; 
Medicare & Medicaid: 10.0%; 
Net interest: 14.0%; 
All other spending: 29.0%. 

2006: 
Defense: 20.0%; 
Social Security: 21.0%; 
Medicare & Medicaid: 19.0%; 
Net interest: 9.0%; 
All other spending: 32.0%. 

Sources: Office of Management and Budget and the Department of the 
Treasury. 

Note: Numbers may not add to 100 percent due to rounding. 

[End of figure] 

Fiscal Year 2005 and 2006 Deficits and Net Operating Costs: 

Dollars in billions. 
	
On-Budget Deficit[A]; 
Fiscal Year 2005: ($494); 
Fiscal Year 2006: ($434). 
	
Unified Deficit; 
Fiscal Year 2005: ($318); 
Fiscal Year 2006: ($248). 

Net Operating Cost[B]; 
Fiscal Year 2005: ($760); 
Fiscal Year 2006: ($450).  

Sources: The Office of Management and Budget and the Department of the 
Treasury. 

[A] Includes $173 billion in Social Security surpluses for fiscal year 
2005 and $185 billion for fiscal year 2006; $2 billion in Postal 
Service surpluses for fiscal year 2005 and $1 billion for fiscal year 
2006. 

[B] Fiscal year 2005 and 2006 net operating cost figures reflect 
significant but opposite changes in certain actuarial costs. For 
example, changes in interest rates and other assumptions used to 
estimate future veterans' compensation benefits increased net operating 
cost by $228 billion in 2005 and reduced net operating cost by $167 
billion in 2006. Therefore, the net operating costs for fiscal 2005 and 
2006, exclusive of one-time actuarial gains, were ($532) billion and 
($617) billion, respectively. 

[End of table]  

Major Fiscal Exposures ($ trillions): 

Explicit liabilities (Publicly held debt, military & civilian pensions 
& retiree health, other); 	
2000: $6.9; 
2006: $10.4; 
Percent Increase: 52%. 
	
Commitments & Contingencies: e.g., PBGC, undelivered orders; 
2000: $0.5; 
2006: $1.3; 
Percent Increase: 140%. 

Implicit exposures; 
2000: $13.0; 
2006: $38.8; 
Percent Increase: 197%.

Implicit exposures: Future Social Security benefits; 
2000: $3.8; 
2006: $6.4; 
Percent Increase: [Empty]. 

Implicit exposures: Future Medicare Part A benefits; 
2000: $2.7; 
2006: $11.3; 
Percent Increase: [Empty]. 

Implicit exposures: Medicare Part B benefits; 
2000: $6.5; 
2006: $13.1; 
Percent Increase: [Empty]. 

Implicit exposures: Medicare Part D benefits; 
2006: $7.9; 
Percent Increase: [Empty]. 

Total; 
2000: $20.4; 
2006: $50.5; 
Percent Increase: 147%. 

Source: 2000 and 2006 Financial Report of the United States Government. 

Note: Totals and percent increases may not add due to rounding. 
Estimates for Social Security and Medicare are at present value as of 
January 1 of each year and all other data are as of September 30. 

[End of table]  

How Big is Our Growing Fiscal Burden? 

This fiscal burden can be translated and compared as follows: 

Total fiscal exposures: $50.5 trillion; 
Total household net worth: $53.3 trillion: 
* Burden/Net worth ratio: 95 percent. 
	
Burden: 
Per person: $170,000; 
Per full-time worker: $400,000; 
Per household: $440,000. 

Income: 
Median household income: $46,326; 
Disposable personal income per capita: $31,519. 

Source: GAO analysis. 

Notes: (1) Federal Reserve Board, Flow of Funds Accounts, Table B.100, 
2006:Q2 (Sept. 19, 2006); (2) Burdens are calculated using estimated 
total U.S. population as of 9/30/06, from the U.S. Census Bureau; full- 
time workers reported by the Bureau of Economic Analysis, in NIPA table 
6.5D (Aug. 2, 2006); and households reported by the U.S. Census Bureau, 
in Income, Poverty, and Health Insurance Coverage in the United States: 
2005 (Aug. 2006); (3) U.S. Census Bureau, Income, Poverty, and Health 
Insurance Coverage in the United States: 2005 (Aug. 2006); and (4) 
Bureau of Economic Analysis, Personal Income and Outlays: October 2006, 
table 2, (Nov. 30, 2006). 

[End of table] 

Potential Fiscal Outcomes: Under Baseline Extended (January 2001) 
Revenues and Composition of Spending as a Share of GDP: 

[See PDF for image] - graphic text: 
	
Line/Stacked Bar combo chart with 4 groups, 1 line (Revenue) and 4 bars 
per group. 	

2005; 
Net interest: 0.8%; 
Social Security: 4.3%; 
Medicare & Medicaid: 3.7%; 
All other spending: 8.0%; 
Revenue: 20.3%. 

2015[A]; 
Net interest: 0%; 
Social Security: 5.1%; 
Medicare & Medicaid: 4.9%; 
All other spending: 5.6%; 
Revenue: 20.4%. 

2030[A]; 
Net interest: 0%; 
Social Security: 6.6%; 
Medicare & Medicaid: 9.4%; 
All other spending: 4.0%; 
Revenue: 20.4%. 

2040[A]; 
Net interest: 0%; 
Social Security: 6.7%; 
Medicare & Medicaid: 9.0%; 
All other spending: 4.4%; 
Revenue: 20.4%.

Source: GAO's January 2001 analysis. 

Notes: Revenue as a share of GDP increases through 2011 due to (1) real 
bracket creep, (2) more taxpayers becoming subject to the AMT, and (3) 
increased revenue from tax-deferred retirement accounts. After 2011, 
revenue as a share of GDP is held constant-implicitly assuming action 
to offset the increased revenue from real bracket creep, the AMT, and 
tax-deferred retirement accounts. 

[A] All other spending is net of offsetting interest receipts. 

[End of figure] 

Potential Fiscal Outcomes Alternative Simulation-Discretionary Spending 
Grows with GDP and Expiring Tax Provisions Extended (January 2007) 
Revenues and Composition of Spending as a Share of GDP: 

[See PDF for image] - graphic text: 
		
Line/Stacked Bar combo chart with 4 groups, 1 line (Revenue) and 4 bars 
per group. 	

2006; 
Net interest: 1.7%; 
Social Security: 4.2%; 
Medicare & Medicaid: 3.9%; 
All other spending: 10.5%; 
Revenue: 18.4%. 

2015; 
Net interest: 2.1%; 
Social Security: 4.6%; 
Medicare & Medicaid: 4.9%; 
All other spending: 9.6%; 
Revenue: 17.6%. 

2030; 
Net interest: 5.9%; 
Social Security: 6.8%; 
Medicare & Medicaid: 8.3%; 
All other spending: 9.5%; 
Revenue: 17.8%. 

2040; 
Net interest: 12.1%; 
Social Security: 7.6%; 
Medicare & Medicaid: 10.3%; 
All other spending: 9.5%; 
Revenue: 17.8%.

Source: GAO's January 2007 analysis. 

Notes: AMT exemption amount is retained at the 2006 level through 2017 
and expiring tax provisions are extended. After 2017, revenue as a 
share of GDP is held constant-implicitly assuming that action is taken 
to offset increased revenue from real bracket creep, the AMT, and tax- 
deferred retirement accounts. 

[End of figure] 

Social Security, Medicare, and Medicaid Spending as a Percent of GDP: 

[See PDF for image] - graphic text: 

Area graph with 81 Groups and 3 items per Group. 

Percent of GDP: 

Year: 2000; 
Social Security: 4.23%; 
Medicaid: 1.20%; 
Medicare: 2.27%. 

Year: 2001; 
Social Security: 4.33%; 
Medicaid: 1.30%; 
Medicare: 2.44%. 

Year: 2002; 
Social Security: 4.41%; 
Medicaid: 1.40%; 
Medicare: 2.52%. 

Year: 2003; 
Social Security: 4.37%; 
Medicaid: 1.50%; 
Medicare: 2.57%. 

Year: 2004; 
Social Security: 4.27%; 
Medicaid: 1.50%; 
Medicare: 2.67%. 

Year: 2005; 
Social Security: 4.24%; 
Medicaid: 1.5%; 
Medicare: 2.73%. 

Year: 2006; 
Social Security: 4.28%; 
Medicaid: 1.4%; 
Medicare: 3.21%. 

Year: 2007; 
Social Security: 4.26%; 
Medicaid: 1.4%; 
Medicare: 3.29%. 

Year: 2008; 
Social Security: 4.24%; 
Medicaid: 1.5%; 
Medicare: 3.39%. 

Year: 2009; 
Social Security: 4.27%; 
Medicaid: 1.5%; 
Medicare: 3.45%. 

Year: 2010; 
Social Security: 4.32%; 
Medicaid: 1.6%; 
Medicare: 3.53%. 

Year: 2011; 
Social Security: 4.36%; 
Medicaid: 1.6%; 
Medicare: 3.60%. 

Year: 2012; 
Social Security: 4.44%; 
Medicaid: 1.7%; 
Medicare: 3.69%. 

Year: 2013; 
Social Security: 4.54%; 
Medicaid: 1.7%; 
Medicare: 3.80%. 

Year: 2014; 
Social Security: 4.64%; 
Medicaid: 1.8%; 
Medicare: 3.90%. 

Year: 2015; 
Social Security: 4.74%; 
Medicaid: 1.8%; 
Medicare: 4.00%. 

Year: 2016; 
Social Security: 4.84%; 
Medicaid: 2.00%; 
Medicare: 4.13%. 

Year: 2017; 
Social Security: 4.95%; 
Medicaid: 2.10%; 
Medicare: 4.25%. 

Year: 2018; 
Social Security: 5.06%; 
Medicaid: 2.20%; 
Medicare: 4.38%. 

Year: 2019; 
Social Security: 5.16%; 
Medicaid: 2.20%; 
Medicare: 4.52%. 

Year: 2020; 
Social Security: 5.27%; 
Medicaid: 2.30%; 
Medicare: 4.67%. 

Year: 2021; 
Social Security: 5.38%; 
Medicaid: 2.30%; 
Medicare: 4.83%. 

Year: 2022; 
Social Security: 5.48%; 
Medicaid: 2.40%; 
Medicare: 5.00%. 

Year: 2023; 
Social Security: 5.58%; 
Medicaid: 2.40%; 
Medicare: 5.17%. 

Year: 2024; 
Social Security: 5.68%; 
Medicaid: 2.50%; 
Medicare: 5.35%. 

Year: 2025; 
Social Security: 5.78%; 
Medicaid: 2.60%; 
Medicare: 5.54%. 

Year: 2026; 
Social Security: 5.88%; 
Medicaid: 2.60%; 
Medicare: 5.73%. 

Year: 2027; 
Social Security: 5.97%; 
Medicaid: 2.70%; 
Medicare: 5.92%. 

Year: 2028; 
Social Security: 6.05%; 
Medicaid: 2.70%; 
Medicare: 6.11%. 

Year: 2029; 
Social Security: 6.12%; 
Medicaid: 2.80%; 
Medicare: 6.29%. 

Year: 2030; 
Social Security: 6.18%; 
Medicaid: 2.80%; 
Medicare: 6.48%. 

Year: 2031; 
Social Security: 6.24%; 
Medicaid: 2.90%; 
Medicare: 6.66%. 

Year: 2032; 
Social Security: 6.28%; 
Medicaid: 2.90%; 
Medicare: 6.83%. 

Year: 2033; 
Social Security: 6.32%; 
Medicaid: 3.00%; 
Medicare: 6.99%. 

Year: 2034; 
Social Security: 6.35%; 
Medicaid: 3.10%; 
Medicare: 7.15%. 

Year: 2035; 
Social Security: 6.36%; 
Medicaid: 3.10%; 
Medicare: 7.32%. 

Year: 2036; 
Social Security: 6.37%; 
Medicaid: 3.20%; 
Medicare: 7.48%. 

Year: 2037; 
Social Security: 6.38%; 
Medicaid: 3.30%; 
Medicare: 7.62%. 

Year: 2038; 
Social Security: 6.38%; 
Medicaid: 3.30%; 
Medicare: 7.75%. 

Year: 2039; 
Social Security: 6.37%; 
Medicaid: 3.40%; 
Medicare: 7.86%. 

Year: 2040; 
Social Security: 6.36%; 
Medicaid: 3.40%; 
Medicare: 7.98%. 

Year: 2041; 
Social Security: 6.35%; 
Medicaid: 3.50%; 
Medicare: 8.09%. 

Year: 2042; 
Social Security: 6.34%; 
Medicaid: 3.60%; 
Medicare: 8.19%. 

Year: 2043; 
Social Security: 6.33%; 
Medicaid: 3.60%; 
Medicare: 8.29%. 

Year: 2044; 
Social Security: 6.32%; 
Medicaid: 3.70%; 
Medicare: 8.40%. 

Year: 2045; 
Social Security: 6.3%; 
Medicaid: 3.70%; 
Medicare: 8.50%. 

Year: 2046; 
Social Security: 6.29%; 
Medicaid: 3.80%; 
Medicare: 8.61%. 

Year: 2047; 
Social Security: 6.29%; 
Medicaid: 3.80%; 
Medicare: 8.71%. 

Year: 2048; 
Social Security: 6.28%; 
Medicaid: 3.90%; 
Medicare: 8.79%. 

Year: 2049; 
Social Security: 6.27%; 
Medicaid: 3.90%; 
Medicare: 8.87%. 

Year: 2050; 
Social Security: 6.26%; 
Medicaid: 4.00%; 
Medicare: 8.95%. 

Year: 2051; 
Social Security: 6.26%; 
Medicaid: 4.06%; 
Medicare: 9.04%. 

Year: 2052; 
Social Security: 6.26%; 
Medicaid: 4.13%; 
Medicare: 9.11%. 

Year: 2053; 
Social Security: 6.25%; 
Medicaid: 4.19%; 
Medicare: 9.19%. 

Year: 2054; 
Social Security: 6.25%; 
Medicaid: 4.26%; 
Medicare: 9.26%. 

Year: 2055; 
Social Security: 6.25%; 
Medicaid: 4.33%; 
Medicare: 9.35%. 

Year: 2056; 
Social Security: 6.25%; 
Medicaid: 4.39%; 
Medicare: 9.44%. 

Year: 2057; 
Social Security: 6.26%; 
Medicaid: 4.46%; 
Medicare: 9.52%. 

Year: 2058; 
Social Security: 6.26%; 
Medicaid: 4.53%; 
Medicare: 9.60%. 

Year: 2059; 
Social Security: 6.26%; 
Medicaid: 4.60%; 
Medicare: 9.68%. 

Year: 2060; 
Social Security: 6.26%; 
Medicaid: 4.68%; 
Medicare: 9.76%. 

Year: 2061; 
Social Security: 6.26%; 
Medicaid: 4.75%; 
Medicare: 9.83%. 

Year: 2062; 
Social Security: 6.26%; 
Medicaid: 4.83%; 
Medicare: 9.91%. 

Year: 2063; 
Social Security: 6.27%; 
Medicaid: 4.90%; 
Medicare: 9.98%. 

Year: 2064; 
Social Security: 6.27%; 
Medicaid: 4.98%; 
Medicare: 10.05%. 

Year: 2065; 
Social Security: 6.28%; 
Medicaid: 5.06%; 
Medicare: 10.12%. 

Year: 2066; 
Social Security: 6.29%; 
Medicaid: 5.14%; 
Medicare: 10.20%. 

Year: 2067; 
Social Security: 6.29%; 
Medicaid: 5.22%; 
Medicare: 10.28%. 

Year: 2068; 
Social Security: 6.30%; 
Medicaid: 5.30%; 
Medicare: 10.35%. 

Year: 2069; 
Social Security: 6.30%; 
Medicaid: 5.38%; 
Medicare: 10.42%. 

Year: 2070; 
Social Security: 6.31%; 
Medicaid: 5.47%; 
Medicare: 10.48%. 

Year: 2071; 
Social Security: 6.31%; 
Medicaid: 5.55%; 
Medicare: 10.54%. 

Year: 2072; 
Social Security: 6.31%; 
Medicaid: 5.64%; 
Medicare: 10.59%. 

Year: 2073; 
Social Security: 6.32%; 
Medicaid: 5.73%; 
Medicare: 10.65%. 

Year: 2074; 
Social Security: 6.32%; 
Medicaid: 5.82%; 
Medicare: 10.70%. 

Year: 2075; 
Social Security: 6.32%; 
Medicaid: 5.91%; 
Medicare: 10.74%. 

Year: 2076; 
Social Security: 6.32%; 
Medicaid: 6.01%; 
Medicare: 10.79%. 

Year: 2077; 
Social Security: 6.32%; 
Medicaid: 6.10%; 
Medicare: 10.84%. 

Year: 2078; 
Social Security: 6.32%; 
Medicaid: 6.20%; 
Medicare: 10.88%. 

Year: 2079; 
Social Security: 6.32%; 
Medicaid: 6.29%; 
Medicare: 10.93%. 

Year: 2080; 
Social Security: 6.32%; 
Medicaid: 6.39%; 
Medicare: 10.98%.

Sources: GAO analysis based on data from the Office of the Chief 
Actuary, Social Security Administration, Office of the Actuary, Centers 
for Medicare and Medicaid Services, and the Congressional Budget 
Office. 

Notes: Social Security and Medicare projections based on the 
intermediate assumptions of the 2006 Trustees' Reports. Medicaid 
projections based on CBO's August 2006 short-term Medicaid estimates 
and CBO's December 2005 long-term Medicaid projections under mid-range 
assumptions. 

[End of figure] 

Health Care Is the Nation's Top Tax Expenditure in Fiscal Year 2006: 

[See PDF for image] --graphic text: 

Bar chart with five items: 

Exclusion of employer contributions for insurance premiums and medical 
care: $125[A]. 
Deductibility of mortgage interest on owner-occupied dwellings: $68.3. 
Exclusion of pension contributions and earnings: employer-sponsored 
401(K) plans: $49[B]. 
Exclusion of pension contributions and earnings: employer-sponsored 
defined benefit plans: $48.6. 
Deductibility of nonbusiness state and local taxes (other than on owner-
occupied dwellings): $43.1. 

Source: Office of Management and Budget (OMB), Analytical Perspectives, 
Budget of the United States Government Fiscal Year 2008. 

Note: `Tax expenditures" refers to the special tax provisions that are 
contained in the federal income taxes on individuals and corporations. 
Treasury does not include forgone revenue from other federal taxes such 
as Social Security and Medicare payroll taxes. 

[A] If the payroll tax exclusion were also counted here, the total tax 
expenditure for employer contributions for health insurance premiums 
would be about 50 percent higher or $187.5 billion. 

[B] This tax expenditure does not include $40.8 billion in revenue 
losses due to defined contribution plans. 

[End of figure] 

Federal Tax Expenditures Exceeded Discretionary Spending for Half of 
the Last Decade: 

Dollars in billions (in real 2005 dollars): 
	
[See PDF for Image] - graphic text: 

Fiscal year: 1982; 
Mandatory spending: $601.60; 
Sum of tax expenditure revenue loss estimates: $463.30; 
Discretionary spending: $585.80. 

Fiscal year: 1983;  
Mandatory spending: $628.50; 
Sum of tax expenditure revenue loss estimates: $499.60; 
Discretionary spending: $608.00. 

Fiscal year: 1984;  
Mandatory spending: $599.60; 
Sum of tax expenditure revenue loss estimates: $529.70; 
Discretionary spending: $629.70. 

Fiscal year: 1985; 
Mandatory spending: $644.80; 
Sum of tax expenditure revenue loss estimates: $568.70; 
Discretionary spending: $688.40. 

Fiscal year: 1986; 
Mandatory spending: $653.40; 
Sum of tax expenditure revenue loss estimates: $618.80; 
Discretionary spending: $688.90. 

Fiscal year: 1987; 
Mandatory spending: $645.00; 
Sum of tax expenditure revenue loss estimates: $577.10; 
Discretionary spending: $680.10. 

Fiscal year: 1988;  
Mandatory spending: $665.30; 
Sum of tax expenditure revenue loss estimates: $448.10; 
Discretionary spending: $689.30. 

Fiscal year: 1989;  
Mandatory spending: $694.40; 
Sum of tax expenditure revenue loss estimates: $474.50; 
Discretionary spending: $698.40. 

Fiscal year: 1990;  
Mandatory spending: $782.80; 
Sum of tax expenditure revenue loss estimates: $480.10; 
Discretionary spending: $689.60. 

Fiscal year: 1991; 
Mandatory spending: $792.10; 
Sum of tax expenditure revenue loss estimates: $472.00; 
Discretionary spending: $708.10. 

Fiscal year: 1992; 
Mandatory spending: $839.90; 
Sum of tax expenditure revenue loss estimates: $488.20; 
Discretionary spending: $691.40. 

Fiscal year: 1993; 
Mandatory spending: $850.30; 
Sum of tax expenditure revenue loss estimates: $494.80; 
Discretionary spending: $683.10. 

Fiscal year: 1994; 
Mandatory spending: $889.70; 
Sum of tax expenditure revenue loss estimates: $520.20; 
Discretionary spending: $671.20. 

Fiscal year: 1995; 
Mandatory spending: $897.20; 
Sum of tax expenditure revenue loss estimates: $538.80; 
Discretionary spending: $661.60. 

Fiscal year: 1996; 
Mandatory spending: $937.40; 
Sum of tax expenditure revenue loss estimates: $541.70; 
Discretionary spending: $634.60. 

Fiscal year: 1997; 
Mandatory spending: $948.60; 
Sum of tax expenditure revenue loss estimates: $565.70; 
Discretionary spending: $640.70. 

Fiscal year: 1998; 
Mandatory spending: $994.40; 
Sum of tax expenditure revenue loss estimates: $640.10; 
Discretionary spending: $638.70. 

Fiscal year: 1999; 
Mandatory spending: $1028.10; 
Sum of tax expenditure revenue loss estimates: $688.60; 
Discretionary spending: $653.20. 

Fiscal year: 2000; 
Mandatory spending: $1064.90; 
Sum of tax expenditure revenue loss estimates: $720.10; 
Discretionary spending: $688.10. 

Fiscal year: 2001; 
Mandatory spending: $1101.90; 
Sum of tax expenditure revenue loss estimates: $780.90; 
Discretionary spending: $710.00. 

Fiscal year: 2002; 
Mandatory spending: $1186.60; 
Sum of tax expenditure revenue loss estimates: $808.80; 
Discretionary spending: $787.90. 

Fiscal year: 2003; 
Mandatory spending: $1243.20; 
Sum of tax expenditure revenue loss estimates: $775.90; 
Discretionary spending: $868.50. 

Fiscal year: 2004; 
Mandatory spending: $1271.40; 
Sum of tax expenditure revenue loss estimates: $748.20; 
Discretionary spending: $920.20. 

Fiscal year: 2005; 
Mandatory spending: $1319.80; 
Sum of tax expenditure revenue loss estimates: $775.70; 
Discretionary spending: $968.50. 

Source: GAO analysis of OMB budget reports on tax expenditures, fiscal 
years 1976-2007. 

Note: Summing tax expenditure estimates does not take into account 
interactions between individual provisions. Outlays associated with 
refundable tax credits are included in mandatory spending. 

[End of figure] 

Current Fiscal Policy Is Unsustainable: 

The "Status Quo" is Not an Option: 

* We face large and growing structural deficits largely due to known 
demographic trends and rising health care costs. 

* GAO's simulations show that balancing the budget in 2040 could 
require actions as large as: 

- Cutting total federal spending by 60 percent or: 

- Raising federal taxes to 2 times today's level: 

Faster Economic Growth Can Help, but It Cannot Solve the Problem: 

* Closing the current long-term fiscal gap based on reasonable 
assumptions would require real average annual economic growth in the 
double digit range every year for the next 75 years. 

* During the 1990s, the economy grew at an average 3.2 percent per 
year. 

* As a result, we cannot simply grow our way out of this problem. Tough 
choices will be required. 

The Way Forward: A Three-Pronged Approach: 

1. Improve Financial Reporting, Public Education, and Performance 
Metrics: 

2. Strengthen Budget and Legislative Processes and Controls: 

3. Fundamental Reexamination & Transformation for the 21St Century 
(i.e., entitlement programs, other spending, and tax policy): 

Solutions Require Active Involvement from both the Executive and 
Legislative Branches: 

The Way Forward: Improve Financial Reporting, Public Education, and 
Performance Metrics: 

Improve transparency & completeness of President's budget proposal: 

* Return to 10-year estimates in budget both for current policies and 
programs and for policy proposals: 

* Include in the budget estimates of long-term cost of policy proposals 
& impact on total fiscal exposures. 

* Improve transparency of tax expenditures: 

Consider requiring President's budget to specify & explain a fiscal 
goal and a path to that goal within 10-year window--or justify an 
alternative deadline: 

Require annual OMB report on existing fiscal exposures [liabilities, 
obligations, explicit & implied commitments] 

Require enhanced financial statement presentation and preparation of 
summary annual report that is both useful and used: 

Increase information on long-range fiscal sustainability issues in 
Congressional Budget Resolution & Budget Process. 

Develop key national (outcome-based) indicators (e.g. economic, 
security, social, environmental) to chart the nation's posture, 
progress, and position relative to the other major industrial 
countries: 

The Way Forward: Strengthen Budget and Legislative Processes and 
Controls: 

Restore discretionary spending caps & PAYGO rules on both spending and 
tax sides of the ledger: 

Develop mandatory spending triggers [with specific defaults], and other 
action-forcing provisions (e.g., sunsets) for both direct spending 
programs and tax preferences: 

Develop, impose & enforce modified rules for selected items (e.g., 
earmarks, emergency designations, and use of supplementals): 

Require long-term cost estimates (e.g. present value) for any 
legislative debate on all major tax and spending bills, including 
entitlement programs. Cost estimates should usually assume no sunset: 

Extend accrual budgeting to insurance & federal employee pensions; 
develop techniques for extending to retiree health & environmental 
liabilities: 

Consider biennial budgeting: 

Consider expedited line item rescissions from the President that would 
only require a majority vote to override the proposed rescission(s): 

The Way Forward: Fundamental Reexamination & Transformation: 

Restructure existing entitlement programs: 

Reexamine and restructure the base of all other spending: 

Review & revise existing tax policy, including tax preferences and 
enforcement programs: 

Expand scrutiny of all proposed new programs, policies, or activities: 

Reengineer internal agency structures and processes, including more 
emphasis on long-term planning, integrating federal activities, and 
partnering with others both domestically and internationally: 

Strengthen and systematize Congressional oversight processes: 

Increase transparency associated with government contracts and other 
selected items: 

Consider a capable, credible, bi-partisan entitlement and tax reform 
commission along the lines proposed by Sen. Voinovich and Cong. Wolf: 

21st Century Challenges Report: 

Provides background, framework, and questions to assist in reexamining 
the base: 

Covers entitlements & other mandatory spending, discretionary spending, 
and tax policies and programs: 

Based on GAO's work for the Congress: 

Source: GAO. 

Twelve Reexamination Areas: 

MISSION AREAS: 

* Defense: 
* International Affairs: 
* Education & Employment: 
* Natural Resources, Energy & Environment: 
* Retirement & Disability: 
* Financial Regulation & Housing: 
* Health Care: 
* Science & Technology: 
* Homeland Security: 
* Transportation: 

Crosscutting Areas: 

* Improving Governance: 
* Reexamining the Tax System: 

Illustrative 21st Century Questions: Health Care: 

How can we make our current Medicare and Medicaid programs sustainable? 
For example, should the eligibility requirements (e.g., age, income 
requirements) for these programs be modified? 

How can we perform a systematic reexamination of our current health 
care system? For example, could public and private entities work 
jointly to establish formal reexamination processes that would (1) 
define and update as needed a minimum core of essential health care 
services, (2) ensure that all Americans have access to the defined 
minimum core services, (3) allocate responsibility for financing these 
services among such entities as government, employers, and individuals, 
and (4) provide the opportunity for individuals to obtain additional 
services at their discretion and cost? 

Key Dates Highlight Long Term Challenges of the Medicare Program: 

Date: 2006; 
Event: Medicare Part A outlays exceed cash income; 

Date: 2007; 
Event: Estimated trigger date for "Medicare funding warning";

Date: 2012; 
Event: Projected date that annual "general revenue funding" for Part B 
will exceed 45 percent of total Medicare outlays; 

Date: 2018: 
Event: Part A trust fund exhausted, annual income sufficient to pay 
about 80% of promised Part A benefits.

Source: 2006 Annual Report of The Boards of Trustees of The Federal 
Hospital Insurance and Federal Supplementary Medical Insurance Trust 
Funds (Washington, DC, May 2006). 

[End of table] 

Growth in Health Care Spending: Health Care Spending as a Percentage of 
GDP: 

[See PDF for Image] - graphic text: 

Bar graph. 

Year: 1975; 
Percentage of GDP: 8.1%. 

Year: 1985; 
Percentage of GDP: 10.4%. 

Year: 1995; 
Percentage of GDP: 13.7%. 

Year: 2005; 
Percentage of GDP: 16.0. 

Year: 2015; 
Percentage of GDP: 19.2%. 

Source: The Centers for Medicare & Medicaid Services, Office of the 
Actuary. Note: The figure for 2015 is projected. 

[End of figure] 

Growth in Health Care Spending: 

Cumulative Growth in Health Care Spending Per Capita, Medical 
Inflation, GDP, and General Inflation, 2000-2005: 

[See PDF for Image] - graphic text: 
	
Line graph with 4 separate lines. 

Year: 2000;  
Health Care Spending per capita: 0; 
CPI-Medical: 0; 
GDP: 0; 
CPI-Urban Consumers: 0. 

Year: 2001; 
Health Care Spending per capita: 7.47%; 
CPI-Medical: 4.60%; 
GDP: 3.17%; 
CPI-Urban Consumers: 2.85%. 

Year: 2002; 
Health Care Spending per capita: 16.05%; 
CPI-Medical: 9.51%; 
GDP: 6.65%; 
CPI-Urban Consumers: 4.47%. 

Year: 2003; 
Health Care Spending per capita: 24.26%; 
CPI-Medical: 13.92%; 
GDP: 11.65%; 
CPI-Urban Consumers: 6.85%. 

Year: 2004; 
Health Care Spending per capita: 31.98%; 
CPI-Medical: 18.90%; 
GDP: 19.31%; 
CPI-Urban Consumers: 9.70%. 

Year: 2005; 
Health Care Spending per capita: 39.81%; 
CPI-Medical: 23.93%; 
GDP: 26.88%; 
CPI-Urban Consumers: 13.41%. 

Source: Bureau of Labor Statistics, The Centers for Medicare & Medicaid 
Services, Office of the Actuary, and the Bureau of Economic Analysis. 

[End of figure] 

Growth in Health Care Spending: U.S Compared to Other OECD Countries, 
2004: 

[See PDF for Image] - graphic text: 

Scatter plot diagram, only specific OECD countries singled out. 

Country: Turkey; 
Health care spending per capita (USD $PPP): $580; 
Percent of GDP spend on health care: 7.7%. 

Country: South Korea; 
Health care spending per capita (USD $PPP): $1,149; 
Percent of GDP spend on health care: 5.6%. 

Country: United States; 
Health care spending per capita (USD $PPP): $6,102; 
Percent of GDP spend on health care: 15.3%. 

Source: OECD Health Data, 2006: 

Notes: All of the data on per capita spending and GDP have been 
translated into U.S. dollar equivalents, with exchange rates based on 
purchasing power parities (PPPs) of the national currencies: 

[End of figure]  

Number of Non-elderly Uninsured Americans, 1999-2005: 

Year: 1999; 
Population in millions: $39.0. 

Year: 2000; 
Population in millions: $38.4. 

Year: 2001; 
Population in millions: $40.9. 

Year: 2002; 
Population in millions: $43.3. 

Year: 2003; 
Population in millions: $44.6. 

Year: 2004; 
Population in millions: $45.5. 

Year: 2005; 
Population in millions: $46.1. 

Sources: GAO and Urban Institute and Kaiser Commission on Medicaid and 
the Uninsured analyses. 

Notes: Figures for 1999-2000 are from Urban Institute and Kaiser 
Commission on Medicaid and the Uninsured. The figures for 2001-2005 are 
from GAO analyses of the Bureau of the Labor Statistics and the Bureau 
of the Census Current Population Survey, Annual Social and Economic 
Supplement. 

[End of figure] 

Where the United States Ranks on Selected Health Outcome Indicators: 

Outcome: Life expectancy at birth, U.S. = 77.5 years in 2003; 
Rank: 23 out of 30 in 2003. 

Outcome: Infant mortality, U.S. = 6.9 deaths in 2003; 
Rank: 25 out of 30 in 2003. 

Outcome: Potential Years of Life Lost, U.S. = 5,066 in 2002; 
Rank: 23 out of 26 in 2002. 

Source: OECD Health Data 2006. 

Notes: Data are the most recent available for all countries. Life 
expectancy at birth for the total population is estimated by the OECD 
Secretariat for all countries, as the unweighted average of the life 
expectancy of men and women. Infant mortality is measured as the number 
of deaths per 1,000 live births. Potential years of life lost (PYLL) is 
the sum of the years of life lost prior to age 70, given current age- 
specific death rates (e.g., a death at 5 years of age is counted as 65 
years of PYLL). 

[End of table]  

The Administration's Health Care Reform Proposals: 

Reduce the tax preference for employer-sponsored coverage: 

* Replace the current exclusion for employer-provided health insurance 
with a new standard deduction for health insurance of $15,000 for 
families ($7,500 for singles). (Deduction applies to insurance 
purchased individually or provided by an employer. Employees are 
required to include the value of employer-provided health coverage in 
their gross income): 

Slow the annual growth in Medicare spending over 10 years from 7.4% to 
6.7%: 

* Reduce provider payments and allow scheduled physician fee reductions 
to occur: 

* Automatically reduce reimbursements by 0.4 percent when general 
revenue funding for Medicare exceeds 45 percent: 

Increase Medicare revenues through expansion of income-related 
premiums: 

* Eliminate annual inflation adjustments to income thresholds governing 
Part B premium levels: 

* Implement income-based premium for prescription drug benefit: 

Slow the annual growth in Medicaid spending over 10 years from 7.7% to 
7.6%: 

* Limit Medicaid matching rates for administrative costs To 50 percent: 

* Reduce Medicaid reimbursements to government providers: 

* Eliminate certain reimbursements for school-based services: 

* Revise coverage of rehabilitation services: 

* Eliminate reimbursements for graduate medical education: 

Reauthorize SCHIP for 5 years: 

* Maintain current enrollment revels for targeted low income children: 

* Refocus the program on low-income, uninsured children below 200 
percent of Federal poverty level: 

* Target SCHIP funds to states with most need: 

Examples of Other Recent Health Care Reform Proposals: 

Sponsor: Senator Susan Collins; 
Reform Proposal or Strategy: Access to Affordable Health Care Act. 

Sponsor: Senator Ron Wyden; 
Reform Proposal or Strategy: Healthy Americans Act. 

Sponsor: Senator Voinovich, Senator Bingaman, and Representative 
Baldwin; 
Reform Proposal or Strategy: Health Partnership Act. 

Sponsor: Health Coverage Coalition for the Uninsured; 
Reform Proposal or Strategy: Kids 1st Initiative, state innovation, 
other reforms. 

Sponsor: New America Foundation; 
Reform Proposal or Strategy: Fully portable health insurance for all 
Americans. 

Sponsor: Newt Gingrich; 
Reform Proposal or Strategy: 21st Century Intelligent Health System. 

Sponsor: America's Health Insurance Plans; 
Reform Proposal or Strategy: A Vision for Reform. 

Sponsor: Federation of American Hospitals; 
Reform Proposal or Strategy: Health Coverage Passport. 

[End of table] 

Issues to Consider in Examining Our Health Care System: 

The public needs to be educated about the differences between wants, 
needs, affordability, and sustainability at both the individual and 
aggregate level: 

Ideally, health care reform proposals will: 

* Align Incentives for providers and consumers to make prudent 
decisions about the use of medical services, 

* Foster Transparency with respect to the value and costs of care, and: 

* Ensure Accountability from insurers and providers to meet standards 
for appropriate use and quality. 

Ultimately, we need to address four key dimensions: access, cost, 
quality, and personal responsibility: 

Selected Potential Health Care Reform Approaches: 

Reform Approach action action: Revise the government's payment systems 
and leverage its purchasing authority to foster value-based purchasing 
for health care products and services; 
Short-term: Check; 
Long-term: [Empty]. 

Reform Approach action action: Consider additional flexibility for 
states to serve as models for possible health care reforms; 
Short-term: Check; 
Long-term: [Empty]. 

Reform Approach action action: Consider limiting direct advertising and 
allowing limited importation of prescription drugs; 
Short-term: Check; 
Long-term: [Empty]. 

Reform Approach action action: Foster more transparency in connection 
with health care costs and outcomes; 
Short-term: Check; 
Long-term: [Empty]. 

Reform Approach action action: Create incentives that encourage 
physicians to utilize prescription drugs and other health care products 
and services economically and efficiently; 
Short-term: Check; 
Long-term: [Empty]. 

Reform Approach action action: Foster the use of information technology 
to increase consistency, transparency, and accountability in health 
care; 
Short-term: Check; 
Long-term: [Empty]. 

Reform Approach action action: Encourage case management approaches for 
people with chronic and expensive conditions to improve the quality and 
efficiency of care delivered and avoid inappropriate care; 
Short-term: Check; 
Long-term: [Empty]. 

Reform Approach action action: Reexamine the design and operational 
structure of the nation's health care entitlement programs-Medicare and 
Medicaid, including exploring more income-related approaches; 
Short-term: Check; 
Long-term: Check. 

Reform Approach action action: Revise certain federal tax preferences 
for health care to encourage more efficient use of health care products 
and services; 
Short-term: Check; 
Long-term: Check. 

Reform Approach action action: Foster more preventative care and 
wellness services and capabilities, including fighting obesity and 
encouraging better nutrition; 
Short-term: Check; 
Long-term: Check. 

Reform Approach action action: Promote more personal responsibility in 
connection with health care; 
Short-term: Check; 
Long-term: Check. 

Reform Approach action action: Limit spending growth for government-
sponsored health care programs (e.g., percentage of the budget and/or 
economy); 
Short-term: [Empty]; 
Long-term: Check. 

Reform Approach action action: Develop a core set of basic and 
essential services. Create insurance pools for alternative levels of 
coverage, as necessary; 
Short-term: [Empty]; 
Long-term: Check. 

Reform Approach action action: Develop a set of evidence-based national 
practice standards to help avoid unnecessary care, improve outcomes, 
and reduce litigation; 
Short-term: [Empty]; 
Long-term: Check. 

Reform Approach action action: Pursue multinational approaches to 
investing in health care R&D; 
Short-term: [Empty]; 
Long-term: Check. 

[End of table] 

Four National Deficits: 

Budget: 
Balance of Payments: 
Savings: 
Leadership: 

Key Leadership Attributes Needed for These Challenging and Changing 
Times: 

Courage: 
Integrity: 
Creativity: 
Stewardship: 

On the Web: 

Web site: [Hyperlink, http://www.gao.gov/cghome.htm]: 

Contact: 

Paul Anderson, Managing Director, Public Affairs AndersonP1@gao.gov 
(202) 512-4800: 

U.S. Government Accountability Office 441 G Street NW, Room 7149 
Washington, D.C. 20548: 

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