CBO: Health Programs Will Account for Larger Share of GDP in 2020

Spending on Medicare, Medicaid and CHIP will account for 6.3% of the federal gross domestic product by 2020, up from 4.7% in 2012, according to a new report from the Congressional Budget Office, The Hill's "Healthwatch" reports.

Medicare costs are projected to total more than $700 billion in 2020, or about 3.5% of the GDP, and Medicaid is expected to cost about $514 billion, or 2.3% of the GDP. Meanwhile, CHIP and private insurance subsidies called for under the Affordable Care Act will account for the remainder of federal health care spending, or about 0.5% of GDP.

The report also estimated the effects of several cost-control proposals: For example.

• Raising the qualifying age for Medicare would save about $30 billion in 2020;
• Raising Medicare premiums would save about $40 billion; and
• Placing limits on medical malpractice lawsuits would save $10 billion.

The report estimated that repealing the ACA's coverage expansion would save $150 billion, but it also would leave 29 million individuals uninsured. Meanwhile, repealing the entire law would increase the deficit because its new taxes and spending cuts outweigh its expenditures, according to CBO (Baker, "Healthwatch," The Hill, 11/8).

Estimating the Effects of the Sequester

A separate CBO analysis estimated the effect of several tax and spending policies that are set to take effect in 2013, including the sequester and a 27% reduction to Medicare physician reimbursement rates under the sustainable growth rate formula, Modern Healthcare reports (Zigmond, Modern Healthcare, 11/8).

The sequester involves about $1 trillion in across-the-board cuts, including a 2% reduction to all Medicare reimbursement rates in 2013 (California Healthline, 11/8).

According to the report, "eliminating the automatic reductions in nondefense spending and maintaining Medicare's current payment rates for physicians" would increase federal spending by $40 billion in 2013 and $61 billion in 2014 (CBO report, 11/8).

In addition, Medicare spending would be $10 billion higher in 2013 and $16 billion higher in 2014 than CBO's current baseline estimates if the scheduled 27% cut to physician reimbursement rates does not take place (Modern Healthcare, 11/8).

MLR Change Would Add $1B to Deficit

In related news, a third CBO report released Thursday found that a GOP-sponsored bill (HR 1206) that would exempt insurance agent and broker fees from medical-loss ratio calculations would increase the federal deficit by $1 billion over the next 10 years, The Hill's "Healthwatch" reports (Viebeck, "Healthwatch," The Hill, 11/8).

According to CBO, the bill -- sponsored by Rep. Mike Rogers (R-Mich.) -- would make it easier for insurers to meet MLR standards, and therefore less motivated to lower administrative costs.

The MLR provision in the ACA resulted in 13 million U.S. residents receiving $1.1 billion in rebates in 2012. CBO estimated that the legislation would result in an initial reduction in rebates to consumers of 60% to 70%, followed by a 40% to 50% reduction by 2022. The measure also would increase premiums by an average of 0.2% over the next several years, CBO estimated (Attias, CQ Today, 11/8).