ditional federal spending. Similarly, reforms aimed at improving health care quality are likely to increase spending, at least in the near term. Delivery system changes—such as the expansion of health information technology and better primary care—may require considerable up-front investment, with cost savings not being realized until well in the future. Other popular ideas, including prevention and wellness initiatives, may add value to the health system but are unlikely to reduce spending.

Better payment approaches also cannot, by themselves, ensure that the resulting trends in federal health spending will be sustainable, and there is considerable uncertainty about the total budgetary savings that would accrue over the long term from the many possible combinations of health system reforms. At least in the near term, some form of health spending cap is more likely to reduce federal spending than any particular reform or combination of reforms. Although a cap would have the undesirable effect of shifting costs to nongovernment payers, it also has the potential to contribute to longer-term system improvements as fiscal constraints spur administrators and payers to seek efficiencies; given the complexities and uncertainties at issue, the response cannot be predicted. At any rate, the committee does not intend to imply that spending caps could be a long-term substitute for fundamental and systemic reform.

Health spending on its current trend is unsustainable, yet the nation has structured its health system and policy-making process as if there were few resource constraints. An essential prerequisite for change is full acceptance by the public that difficult steps need to be taken. We do not minimize the nature of the challenges that lie ahead. Reorganizing and rationalizing the ways in which health benefits and services are delivered are essential to ensure the fiscal sustainability that is vital to the nation’s future.

The four Medicare and Medicaid spending trajectories described above illustrate a range of potential reductions in the rate of growth for health spending, without specifying which combination of reform options would achieve those reductions. These illustrative options reflect an appropriate modesty about what will lower costs, especially in the near term. They also highlight the very difficult decisions of how much stringency to apply to this sector of the federal budget and national economy. The amount of federal health spending growth reduction achieved over the next several decades will determine the range of choices in other areas of the budget, on both the spending and revenue side, for putting the federal government on a fiscally sustainable course.



1. The federal government also finances several smaller programs, including the Children’s Health Insurance Program, the military’s TRICARE program, health care for veterans, and the Indian Health Service.

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