Guide to Health Care Policy: The 2008 Presidential Election

One of the most pressing issues facing policymakers in the United State is rising health care costs. Cost growth is putting ongoing stress on the budgets of families, employers, and governments. The U.S. already spends $2.2 trillion a year - 16 percent of GDP - for health care. Nearly a third of this comes from the federal government.

Health expenditures are projected to nearly double to $4.3 trillion in a decade, at which point they will represent nearly one-fifth of the economy. According to the Congressional Budget Office, by 2030 they could consume a third, and by 2080 nearly half of GDP.

As health care costs grow, there will be considerable pressure on the federal government's budget. Medicare, which offers retired Americans hospital insurance (Part A), physicians' services insurance (Part B), and a prescription drug plan (Part D), is expected to grow faster than any other single part of the budget as health care costs rise and the population ages. Likewise, Medicaid, which offers insurance for poorer Americans jointly with the states, and the State Children's Health Insurance Program (SCHIP), which works with states to insure children in low-income families who aren't eligible for Medicaid, will see their costs go up. Together, these three programs are expected to rise from 4.2 percent of GDP today to 8.1 percent in 2030 and 18.5 percent in 2082. That would be above the historical average of tax revenue raised to finance all government spending.

The rising cost of private insurance also affects the government's finances because compensation paid in the form of health insurance is not subject to taxation. As health insurance grows as a share of compensation, this "employer exclusion" costs the government more in lost revenues. In 1993, the exclusion resulted in $46 billion in forgone revenue from the income tax. Last year, that number was $106 billion. By 2011 it will be $145 billion.

Despite the amount the federal government spends on health care, there are nearly 46 million Americans without insurance and rising costs threaten to grow the rolls of the uninsured. Furthermore, there are many areas of our health care system where the quality lags behind other nations even as we pay a higher price.

The three inter-related issues - cost, coverage, and quality - dominate the health care debate. While there is little agreement about how it should be done, most Americans agree that something is needed to improve the current system.

Senators McCain and Obama have each proposed a set of reforms to the current health care system. But even accounting for the savings that could be achieved in Medicare, Medicaid, SCHIP, and the employer exclusion, both plans would come at a considerable cost to the U.S. Treasury.