CBO budget report shows impact of healthcare costs and aging population
The aging of the country's population and the rise in healthcare costs will continue to be the nation's biggest economic challenge concluded the Congressional Budget Office's latest economic outlook, released Tuesday.
The cost of government healthcare programs will more than double by 2022 with federal spending on Medicare, Medicaid and other healthcare programs reaching $1.8 trillion – about 7 percent of the entire economy.
"The fundamental fiscal challenge for this decade and beyond remains the aging of the population and rising costs for healthcare," said Douglas Elmendorf, director of the CBO, during a press briefing Tuesday broadcast live on C-Span.
Under current law – meaning that such things as the cuts required by the Budget Control Act and the cuts to physicians' Medicare payments actually happen – the CBO expects spending on Social Security and Medicare will rise by about 2 percent this year to $2.1 trillion or 13.3 percent of gross domestic product (GDP) and it will remain nearly the same for 2013, but thereafter, the CBO expects an increase of about 6 percent per year to reach $3.5 trillion by 2022.
Elmendorf said that the CBO would have more data about the federal healthcare plans in its March forecast. "Although this outlook is the one that gets the most attention in the year, in fact we get more of the data we use for updating the health projections between now and the March baseline," he said. The March projections should also include projections of the effects of the Affordable Care Act (ACA) on the federal healthcare plans.
Of the healthcare plans data the current projections did examine, the CBO noted that there is very slow growth in Medicare spending per beneficiary in the next decade due to the sustainable growth rate (SGR) cut to physicians' Medicare payments, additional restraint imposed by the ACA and a Medicare population that is expected to get younger as more beneficiaries join at age 65 needing less expensive care.
Under the CBO's current law baseline there are potential savings in Oversees Contingency Operations (OCO) that could be used to pay for the repeal of the SGR, as many medical societies have been proposing. Whether those are "true savings," said Elmendorf, depends on the need to fund unforeseen military action.
[See also: ACP releases national healthcare report and argues for SGR repeal.]
The CBO estimated the country's projected deficit for 2012 will be $1.079 trillion, about 2 percent below last year's deficit but still higher than any deficit between 1947 and 2008. The deficit will continue to drop over the next decade if current law remains in effect.
The CBO offered an alternative scenario if recent policies rather than current law reign. Under the CBO's alternative fiscal scenario – in which expiring tax provisions (not including the payroll tax reduction) are extended, the cut to physicians' Medicare payments is kept at its current level, the alternative minimum tax is indexed for inflation after 2011 and the reductions mandated by the Budget Control Act do not happen – deficits would average 5.4 percent of the GDP over the 2013-2022 period rather than the current law projection of 1.5 percent and public debt would reach 94 percent of GDP.
"There is no plausible economic outcome under which the policies of the alternative fiscal scenario … would lead to a sustainable budget outcome," Elmendorf said. "… changing current laws to let current policies continue along the lines of the alternative scenario we've outlined would boost the economy and allow people to pay less in taxes and benefit more from government programs in the next few years but would put the nation on an unsustainable fiscal course."
Follow HFN associate editor Stephanie Bouchard on Twitter @SBouchardHFN.
