Unbiased Analysis of Today's Healthcare Issues

Health care spending a key driver of future budget deficets

Written By: Jason Shafrin - Feb• 22•16

The Congressional Budget Office (CBO) released its 2016 10-year budget projections last month and the numbers do not look good.  CBO estimates that the 2016 federal budget deficit will be more than half a trillion dollars ($544 billion), which will cause the total level of federal government debt to increase to 76% of GDP.

How important is health care spending to the federal budget?

Outlays for the major health care programs—Medicare, Medicaid, the Children’s Health Insurance Program, and subsidies offered through health insurance exchanges and related spending—are estimated to total 5.5 percent of GDP in 2016 and to grow rapidly in ensuing years, reaching 6.6 percent of GDP in 2026. (Medicare accounts for roughly three-quarters of that growth; the estimates here are adjusted for shifts in the timing of certain payments.)

If you combine Medicare and Social Security, they will make up “nearly half” of the increase in federal government outlays between 2016 and 2026.  In fact, net federal spending on Medicare beneficiaries rose dramatically in 2015.

Medicare spending in 2015 (net of premiums and other offsetting receipts) rose by $34 billion, or nearly 7 percent—the fastest rate of growth recorded for the program since 2009 (after adjusting for shifts in the timing of certain payments). Part of that increase reflected the fact that certain statutory changes that reduced the rate of growth in Medicare spending had already been implemented. Those provisions will continue to constrain Medicare spending, but to roughly the same extent each year, so they no longer reduce its rate of growth. The increase in 2015 also reflected an expansion of about 3 percent in the number of Medicare beneficiaries and an escalation in the number or cost of services furnished to those beneficiaries, particularly under Part D (which covers outpatient prescription drugs).

How will Medicare spending change in 2016?  CBO writes:

Spending for Medicare (net of premiums and other offsetting receipts and adjusted for shifts in the timing of certain payments) will rise by $28 billion, or 5.2 percent, in 2016, CBO projects. That growth is below last year’s rate of 6.8 percent primarily because of higher premium receipts, on net, resulting from provisions of the Bipartisan Budget Act of 2015 and other legislation that modified Part B premiums for certain Medicare beneficiaries in calendar year 2016.

As baby boomers age into retirement and labor force participation is slow to rebound from the great recession, it is clear that some changes will need to be made to entitlement programs for the elderly in order to sustain them over the long-term.

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