Health Reform WK-EDGE CBO projects general increases in government spending on major health care programs
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Tuesday, July 17, 2018

CBO projects general increases in government spending on major health care programs

By Vanessa M. Cross, J.D., LL.M.

The Congressional Budget Office (CBO) has issued its annual long-term budget projections for the next 30 years. Measured as a percentage of GDP, the CBO’s extended baseline projections generally reflect federal spending, revenue, deficits, and debts under current law. Generally, noninterest spending is projected to rise from 19 percent of GDP in 2018 to 23 percent in 2048, according to the CBO report. This is in great part due to increased government outlays to major health programs, primarily Medicare, as well as Social Security (CBO Report, June 26, 2018).

Major health care programs, generally. Government spending for the major health care programs has steadily grown over the past five decades, according to the report. Major health care spending includes Medicare, Medicaid, the Children’s Health Insurance Program (CHIP), as well as expenditures to subsidize health insurance purchased through the marketplaces established under the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148). According to the report, in 2018, net federal spending for major health care programs is estimated to equal 5.2 percent of GDP. In 2048, if current laws are unchanged, net outlays would increase to 9.2 percent of GDP. The rise in this noninterest spending by the government is greatly attributed to an aging baby-boom generation with a higher life expectancy gaining access to Medicare and Social Security benefits.

Medicare and an aging population. Medicare provides health insurance to about 59 million people and accounts for more than half of government spending for major health care programs, according to the report. Most beneficiaries qualify for Medicare at age 65. As life expectancy increases, the number of persons covered under Medicare also increases. Generally, health care needs also grow as people live longer. In the CBO’s projections, for the 2018 to 2048 period, the aging population accounts for one-third of the increase in spending for the major health care programs.

Increased health care costs. While the rise in health care costs is slowing, over the next 30 years it is projected to grow faster than the growth in potential GDP per person, according to the report. In the CBO’s extended baseline, two-thirds of the government’s increase spending for major health care programs is attributed to excess cost growth accounts as a share of GDP between 2018 and 2048. Federal debt increases with such cost growth, which slows GDP growth and increases spending projections as a share of GDP, according to the report.

Comparison with last year’s projections. CBO’s current long-term projection of federal spending for the major health care programs is slightly lower than the projection it issued in 2017. This is mostly due to the CBO’s increased GDP projections. Additionally, projected spending for Medicare in 2018 and in 2047 were adjusted to reflect slight reductions of premiums paid by Medicare beneficiaries. The CBO has also lowered spending projections through the late 2030s, and increased projections, thereafter, for outlays to Medicaid, CHIP and subsidized health insurance purchased through the marketplaces established under ACA. It should be noted that even if current tax and spending policies do not change from current law, budgetary outcomes may differ from the CBO’s baseline projections due to unexpected changes in the economy, demographics, and other factors.

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