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Congressional Budget Office

Health Care Spending Today and in the Future:Impacts on Federal Deficits and Debt

Presentation to a Conference Organized by the Center for Sustainable Health Spending, Washington, DC

July 18, 2017

Jessica BanthinDeputy Assistant Director

For more details, see CBO, The 2017 Long-Term Budget Outlook (March 2017), www.cbo.gov/publication/52480

1CO N GR ES S IO N A L B UDGE T O F F IC E

An Overview of the Long-Term Budget Outlook

2CO N GR ES S IO N A L B UDGE T O F F IC E

If current laws governing taxes and spending did not change, the condition of the federal budget would worsen considerably over the next three decades.

3CO N GR ES S IO N A L B UDGE T O F F IC E

Growth in federal spending would continue to outpace growth in federal revenues, leading to ever larger budget deficits.

4CO N GR ES S IO N A L B UDGE T O F F IC E

Federal Spending and RevenuesPercentage of Gross Domestic Product

Actual Projected

5CO N GR ES S IO N A L B UDGE T O F F IC E

As a result, debt would grow larger in relation to the economy than ever recorded in U.S. history.

6CO N GR ES S IO N A L B UDGE T O F F IC E

Federal Debt Held by the PublicPercentage of Gross Domestic Product

7CO N GR ES S IO N A L B UDGE T O F F IC E

Federal spending is projected to rise notably in relation to the economy because of growth in spending on Social Security, the major health care programs, and interest on the government’s debt.

8CO N GR ES S IO N A L B UDGE T O F F IC E

Components of Federal SpendingPercentage of Gross Domestic Product

0

5

10

15

2000 2005 2010 2015 2020 2025 2030 2035 2040 2045

Major Health Care Programs

Other Noninterest SpendingSocial SecurityNet Interest

ProjectedActual

9CO N GR ES S IO N A L B UDGE T O F F IC E

Health Care Spending Today

10CO N GR ES S IO N A L B UDGE T O F F IC E

National Spending for Health Care, 2015

1

5 6

Medicare

11CO N GR ES S IO N A L B UDGE T O F F IC E

CBO defines outlays for the major health care programs as spending for:

• Medicare,• Medicaid,• Children’s Health Insurance Program (CHIP), and • Subsidies for health insurance purchased

through the marketplaces established under the Affordable Care Act and related spending.

12CO N GR ES S IO N A L B UDGE T O F F IC E

Net Outlays for Major Health Care Programs in 2017

Medicare 590

Medicaid 385

Health Insurance Subsidies and Related Spending 51

Children's Health Insurance Program 15____________

Total 1,041

Billions of Dollars

13CO N GR ES S IO N A L B UDGE T O F F IC E

Health Care Spending in the Long-Term Budget Outlook

14CO N GR ES S IO N A L B UDGE T O F F IC E

If current laws generally remain unchanged, CBO projects that federal spending on the major health care programs would grow larger than any other category of spending.

15CO N GR ES S IO N A L B UDGE T O F F IC E

Spending in the Past and Under CBO’s Extended Baseline

Percentage of Gross Domestic Product

16CO N GR ES S IO N A L B UDGE T O F F IC E

Spending on the major health care programs would account for 40 percent of federal noninterest spending in 2047, compared with 28 percent today.

17CO N GR ES S IO N A L B UDGE T O F F IC E

Composition of Federal Noninterest Spending Under CBO’s Extended Baseline

Percent

18CO N GR ES S IO N A L B UDGE T O F F IC E

Spending on Medicare is projected to drive much of the growth in spending on major health care programs.

19CO N GR ES S IO N A L B UDGE T O F F IC E

Federal Spending on the Major Health Care Programs, by Category

Percentage of Gross Domestic Product

Projected

20CO N GR ES S IO N A L B UDGE T O F F IC E

Two factors explain the projected growth in spending on major health care programs: aging and rising health care costs per person, or excess cost growth.

21CO N GR ES S IO N A L B UDGE T O F F IC E

Projected Spending Growth in the Major Health Care Programs

Percentage of Gross Domestic Product

22CO N GR ES S IO N A L B UDGE T O F F IC E

Population, by Age GroupMillions of People

23CO N GR ES S IO N A L B UDGE T O F F IC E

Uncertainty in the Long-Term Projection

24CO N GR ES S IO N A L B UDGE T O F F IC E

Even if future tax and spending policies matched the policies specified under current law, budgetary outcomes would undoubtedly differ from CBO’s projections because of changes in the economy, demographics, and other factors, such as excess cost growth.

25CO N GR ES S IO N A L B UDGE T O F F IC E

Federal Debt Given Different Rates of Excess Cost Growth for Federal Spending on Medicare and Medicaid

Percentage of Gross Domestic Product

0

50

100

150

200

250

2000 2005 2010 2015 2020 2025 2030 2035 2040 2045

206

150

109

Actual ProjectedGiven Rates 1 Percentage Point Higher

Extended Baseline, With Excess Cost Growth of 1 Percent in 2047

Given Rates 1 Percentage Point Lower

26CO N GR ES S IO N A L B UDGE T O F F IC E

This presentation will be available on CBO’s website, www.cbo.gov.