Entitlement Spending, Insufficient Revenue To Drive Up Debt, CBO Says
Rising health care spending will contribute to the U.S. debt reaching 200% of the country's gross domestic product by 2037, according to a long-term budget outlook released by the Congressional Budget Office Tuesday, The Hill's "On the Money" reports.
The report notes that under the most likely scenario, in which lawmakers do nothing to address rising entitlement spending, public debt would reach 109% of GDP by 2026 and nearly 200% of GDP by 2037. Another scenario, which factors in automatic cuts to Medicare reimbursement rates to physicians, is less likely. Under those circumstances, public debt would go from 73% of GDP this year to 61% by 2022 and 53% by 2037.
The report notes that health care entitlement spending is a significant contributor to the debt increase. It predicts that such spending will increase from 5% of the country's GDP currently to 10% in 2037 (Wasson, "On the Money," The Hill, 6/5).
It also notes that health care spending as a percentage of GDP has risen from 4.7% in 1960 to 16.8% in 2010, the most recent year for which such data is available. Although the report estimates that spending growth in Medicare, Medicaid and the private sector will slow even without changes in federal law -- because of "reactions to cost pressures" that will result in providers using "cost-reducing technologies" and increasing efficiency -- it also estimates that such spending in relation to GDP will continue to grow.
Federal spending on Medicare and Medicaid increased from 2.2% of GDP in fiscal year 1985 to 5.6% in fiscal year 2011. In the meantime, health spending per U.S. resident outpaced the nation's economy by 1.6 percentage points annually over the previous 25 years. The report states that if such growth rates continue, "total spending on health care would eventually account for all of the country's economic output -- an impossible outcome" (CBO report, 6/5).
The report states, "The explosive path of federal debt ... underscores the need for large and timely policy changes to put the federal government on a sustainable fiscal course" ("On the Money," The Hill, 6/5).
Last fall, President Obama proposed "modest cuts" to Medicare. Meanwhile, the recent House-passed budget includes a plan from House Budget Committee Chair Rep. Paul Ryan (R-Wis.) that would transform Medicare from a fee-for-service program to one in which beneficiaries could either purchase coverage on the private market or maintain traditional Medicare coverage ("On the Money," The Hill, 6/5). The proposal also would reduce Medicaid spending and convert the program to a block-grant system, in which states would receive a fixed amount. The Senate rejected the plan in May (California Healthline, 5/17).
Report Notes Difficulty of Estimating Health Care Spending
The report notes that it "is difficult" to estimate the rate of growth in health care spending. The report states, "The growth of such spending relative to the growth of the economy has varied greatly from year to year during the past several decades, so projections of the difference in growth rates during the next few decades are very uncertain" (CBO report, 6/5).This is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.