April 11, 2018

CBO projects trillion-dollar deficits, rising spending on Medicare and Medicaid

Daily Briefing

    The Congressional Budget Office (CBO) in its latest budget outlook released Monday predicted that the United States' aging population and growth in health care costs will contribute to projected increases in the country's health care spending.

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    Outlook details

    The outlook includes CBO's budget and economic predictions for the United States spanning from 2018 to 2028. Overall, CBO predicted that the federal deficit will surpass $1 trillion by 2020 and will be about $1.85 trillion higher by 2028 than CBO had previously projected, in large part due to recent policy changes, including the tax reform measure President Trump signed into law last year. According to CBO, the federal deficit will be about 17.5% higher by 2028 than it would have been if the tax reform law had not been enacted.

    Health care predictions

    CBO also predicted that the United States' spending on health care will continue to grow, in large part due to the country's aging population and rising health care costs. CBO projected that spending on the country's largest health care programs—Affordable Care Act (ACA) subsidies, CHIP, Medicaid, and Medicare—will increase from 5.3% of the country's Gross Domestic Product (GDP) in 2018 to 6.6% of GDP in 2028.

    Specifically, CBO predicted that the federal government will spend a total of $757 billion from 2019 to 2028 on ACA subsidies. That estimate is lower than the $887 billion CBO in June 2017 had projected the federal government would spend on the subsidies from 2018 to 2027, in part because of policy changes made under Trump, such as eliminating the individual mandate penalty. CBO said spending on the subsidies will rise by 21%, or by $10 billion, in 2018 because of an average 34% increase in premiums for silver-level exchange plans that stemmed from, among other things, the Trump administration's decision to stop paying cost-sharing reductions (CSR) to insurers.

    According to Inside Health Policy, CBO "for the first time" updated its baseline on ACA subsidies to account for increases in silver-level premiums that resulted from stopping the CSR payments, noting that the "technical revisions caused estimates of spending" on the subsidies and related costs "to be $44 billion higher, on net, over the 2018–2027 period than in CBO's June [2017] baseline." That projection "implies" that paying CSRs to insurers "would lower costs relative to the baseline," Inside Health Policy reports. However, Aviva Aron Dine, vice president for health policy at the Center on Budget and Policy Priorities, said, "Questions remain about whether CBO would score (funding for CSRs) as savings," adding, "There's some possibility that they would be treating these differently."

    Overall, CBO predicted that, from 2019 to 2028, spending on the subsidies would increase by just below 5% annually. CBO projected that federal spending on the subsidies will increase from $58 billion in 2018 to $91 billion by 2028.

    CBO also predicted that federal spending on Medicare will increase by an average of 7% annually from 2019 to 2028, and federal spending on Medicaid will increase by an average of 5.5% per year from 2019 to 2028, with both increases stemming mostly from rising health care costs as opposed to enrollment growth. CBO said, "Health care costs per beneficiary are projected to grow faster than the economy over the long term, contributing to growth in spending for Medicare and Medicaid in particular."

    Overall, CBO projected that the United States would spend a total of $16 trillion on Medicare and Medicaid from 2018 to 2028, with the federal government spending an estimated $1.2 trillion on Medicare by 2018.

    In addition, CBO said the country's aging population largely will drive overall increases in federal spending on Social Security and the country's major health plans, when lumped together. CBO predicted that such spending would increase from 10.2% of the country's GDP in 2018 to 12.6% of the country's GDP in 2028 (Diamond, "Pulse," Politico, 4/10; CBO budget outlook, 4/9; Matthews, Vox, 4/10; Wasson/McGregor, Bloomberg, 4/9; Cohen, Inside Health Policy, 4/10 [subscription required]).

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