Washington warned on health costs

by Jeremy Grant
in Washington

Financial Times
Wednesday January 30, 2008 Pg 2

An influential US official yesterday hit out at his country's "addiction to debt" warning that the federal budget was on an "imprudent and unsustainable path" due to ballooning healthcare costs.

David Walker, US comptroller general, warned a Senate budget committee hearing that while recent falls in the budget deficit were encouraging, the long-term fiscal outlook was grim.

"Our real challenge is not this year's deficit, or even next year's; it is how to change our current path so that growing deficits and debt levels do not swamp our ship of state," he said.

"If there is one thing that could bankrupt America, it is runaway health costs. We must not allow this to happen. This is our addiction to debt."

Mr. Walker's comments echo a warning he made last year, in which he urged the US to "learn from the fall of Rome" and deal quickly with a "burning platform" of unsustainable policies, including fiscal deficits.

Moody's Investor Services, the credit rating agency, last month warned that a lack of reform to Medicare - the government-administered healthcare plan - and the social security system threatened the US's long-term fiscal outlook, and thus, its AAA bond rating.

Mr Walker said the root of the problem was the government's continuing pledge to fund the gap between promised and funded social security and Medicare benefits and other commitments. In a report released to coincide with the hearing, the Government Accountability Office - which Mr Walker heads - put the total US public debt at $9,000bn, including the debt held by social security funds. That was almost double the $5,000bn headline figure for the public debt, which excludes such funds' debt.

Including the gap between future promised and funded social security and Medicare benefits, the GAO put the total debt burden in present dollar value at $53,000bn - about four times the size of the US economy.

"Medicare and Medicaid spending threaten to consume an untenable share of the budget and economy in the coming decades," said Mr Walker. The government had essentially written a "blank cheque" for these programmes, he said.

There was a "shrinking window of opportunity" to address the issues, he added. "We have a five- to 10-year window to demonstrate to our foreign lenders that we are getting serious about this. I would say closer to five."

Kent Conrad, the committee chairman, said the US deficit was still a relatively small proportion of gross domestic product, at a projected 2.5 per cent for this year.

Mr Walker conceded that the current deficit and debt levels were "not a major problem." But he said the difference this time was that the US would be unable to grow its way out of a long term fiscal crunch. "We've never seen anything like what we are headed into."