Why are costs of mandatory health care spending programs expected to rise so much?
The Congressional Budget Office’s (CBO) update to the budget and economic outlook (2019-2029) projects that Social Security and the major health care programs—Medicare, Medicaid, subsidies offered through the health insurance marketplaces established under the Affordable Care Act (P.L. 111-148) and related spending, and the Children’s Health Insurance Program—will grow at an average annual rate of 6 percent over the next ten years. As a result, the programs will account for 10.3 percent of gross domestic product (GDP) in 2020 but will increase to 12.5 percent of GDP by 2029. The programs account for more than 90 percent of the projected growth in nominal mandatory spending through 2029 (CBO Report, August 28, 2019).
The aging population and the rising costs of health care are the main reasons for the projected increases, according to the report.
Medicare. Outlays for Medicare (net of offsetting receipts) will rise in 2019. At $605 billion for 2018, they will rise to $636 billion in 2019, remaining at 3.0 percent of GDP. The report projects that outlays for Medicare will remain near 3.0 percent of GDP through 2020 and will then grow each year through 2029, when they will total 4.0 percent.
Net Medicare spending in fiscal year 2019 will exceed its previous projections by about $5 billion (or 1 percent), according to the report. The reasons for the increase are: (1) higher-than-expected spending for Medicare Advantage stemming from annual payment adjustments to account for unanticipated spending increases in the current and previous calendar years, and (2) less-than projected receipts of premiums paid by Medicare beneficiaries.
Part D. CBO lowered its projection of outlays for Medicare Part D (prescription drug coverage) over the 2020–2029 period by $85 billion because of the withdrawal of a proposed rule that would have eliminated the existing safe-harbor provision for pharmaceutical rebates. The CBO report explains that the safe harbor provision is for rebates paid by pharmaceutical manufacturers to health plans and pharmacy benefit managers (PBMs) in Medicare Part D and Medicaid managed care. The safe harbor protects those parties from liability or penalty in specific situations implementing the anti-kickback statute (which prohibits offering or accepting payments to induce use of services reimbursable under federal health care programs). If the safe harbor had been eliminated, it would have been illegal for drug manufacturers to pay rebates to health plans or PBMs in those programs in return for coverage or preferred treatment of their drug.
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