Health Care: Who Will Pay?

As anyone who has spent time in a hospital knows, the cost of health care in the U.S. is already at an unbelievable level, and specialists are predicting even higher medical costs in the future. At the same time, the number of elderly Americans, that segment of the population that places the greatest demand on health care facilities, is increasing steadily, and policy analysts are warning that even now the nation is faced with the heavy burden of trying to provide long-term health care for its parents and grandparents.

Alice M. Rivlin, who is spending a semester in residence at the Kennedy School of Government, has studied this problem for more than three years and is publishing a book on the topic. which she co-authored with a policy analyst, entitled, Caring for the Disabled Elderly: Who Will pay? The text is scheduled to be in bookstores next month.

Care for the Elderly

Rivlin, who is serving in the post of visiting professor of public policy at the K-School, has focused her research on the issue of long-term health care and had then tried to determine the best means of ensuring that all individuals--regardless of personal income--can afford high quality medical services.

"The research is focused on long-term care, meaning not hospital care, but home care and nursing care to help people function--for people who don't need medical help so much but need help dressing, feeding and moving around," Rivlin says.

"Right now that's a growing need because a lot more people are living to advanced ages. The most rapidly growing population in the United States is the very elderly," says Rivlin, who is taking time off from a position as senior fellow at the Brookings Institute, a public policy research center in Washington.

Using a computer, Rivlin created "a microsimulation model" of the population to examine the cost and effects of various types of health financing plans until the year 2020 for people of means. She says her model took into account such personal characteristics as income, assets, pension rates and disabilities.

From the study, Rivlin concluded that major changes in the current system will be necessary to help solve the growing health care problem.

First, people will have to rely increasingly on private insurance and private savings to help pay for long-term care. But this will not be enough, as most people, especially the elderly, do not and will not have the financial resources to afford the services, says Rivlin, former director of the Congressional Budget Office.

"Our way of going at it is to say, 'If the private sector expands a lot, will that handle the problem?' And the answer to that is 'no,'" she says. "This is because most private plans are quite expensive although there is a big market for them."

As a result, part of the answer to the problem may lie with increasing government spending. Rivlin says that Medicare should be expanded to accomodate long-term health care costs, since the federally funded medical insurance program does not currently cover such expenses.

Medicare, a social insurance program, is available to all Americans over 65 regardless of their financial situation, whereas Medicaid, a welfare program, is given only to those who demonstrate the financial need for the money. If Medicare were expanded to cover long-term care costs, it would also remove a significant burden currently placed on Medicaid funds to cover such expenses, says Rivlin, who received her Ph.D. in economics from Harvard in 1958.

Government spending for long-term care should triple to $18 billion a year in order to help combat the problem, and this money can be raised, in part, with higher taxes, she says.

James M. Verdier, a lecturer in public policy at the K-School who worked under Rivlin in the Congressional Budget Office, says he believes Rivlin's research will have a significant impact on American politics and the presidential campaign.

"My own sense is it is a problem people are being very quickly made aware of because the problem is growing more serious," Verdier added. "As awareness grows, people's willingness to pay private premiums and higher Medicare taxes will grow."

Past Experience

Before her job at the Brookings Institute, Rivlin spent eight years as the first director of the Congressional Budget Office (CBO), a nonpartisan office that provides Congress with budget information and analysis.

"When Alice was at the Congressional Budget Office, she did the best work anyone in the country was doing in analyzing the budget," says Paul Jargowsky, an administrator in the Center for Health and Human Resources Policy.

"She built an institute from scratch and built it into a crucial part of the politicizing process in Washington," says Verdier, who was the head of tax analysis at the CBO under Rivlin.

Rivlin, however, was occasionally under fire from lawmakers in Washington who claimed she acquired too much influence in the budget-making process.

"We analyzed proposals and policies on the requests of [congressional] committees, but there were always people who didn't like the answer," Rivlin says. "If we were getting flack from both ends of the spectrum we were doing what we were supposed to be doing."

Opinions on the Budget

Rivlin, who teaches a K-School course this semester on the congressional budget, claims that the current budget deficit is a "major fiscal policy mistake." She says that deficits must be reduced by sometime in the 1990s, cautioning that reducing the deficit too fast could cause a recession.

But Rivlin is against a constitutional balanced budget amendment, an idea that has gained acceptance by many politicians. "You don't want to put government in a straightjacket," Rivlin says. "If you set a specific target, it's likely to be the wrong one."

"It's not true it's never good to have a deficit. Spending tends to go up when the economy goes down. If the Constitution required you to balance the budget, raising taxes or cutting spending would make matters worse," she says.

"The budget brings together major issues in American life," she says. "It reflects the priorities of a majority." For example, she says, the 1980s has seen a shift of emphasis towards a higher priority for defense.

Rivlin's K-School course analyzes defense budgeting and taxation, as well as the process of creating the budget.

Rivlin says that when she returns to the Brookings Institute, she will begin a new book about the budget process, which will include a discussion of tax and spending issues, as well as fiscal and public policies.