Health Care Spending Could Reach 40% of Federal Total by 2047
If current policies don’t change, federal spending on Medicare, Medicaid, and other health care programs will grow faster than any other category over the next three decades — eventually reaching 40% of the federal budget.
The Congressional Budget Office (CBO) presented these statistics in a Wednesday presentation to the Council for Affordable Health Coverage and the American Action Forum, painting a striking picture of the future of Medicaid, the number-one skilled nursing payer.
The nonpartisan CBO defined outlays for the major health care programs as spending for Medicare, Medicaid, the Children’s Health Insurance Program, and subsidies for health insurance purchased under the Affordable Care Act.
That spending represented 28% of the government’s non-interest total; should U.S. medical policy remain the same, those outlays will account for 40% of the total in 30 years. For comparison, the government spends about 25% of its non-interest dollars on Social Security, and the CBO only expects that to grow to 27% by 2047.
The CBO’s projections come after a summer in which Congressional Republicans attempted to slash Medicaid funding, but were eventually thwarted by a handful of Senate defections. Still, while industry groups breathed a sigh of relief at the news, others have warned that attempts to roll back Medicaid didn’t end with the death of 2017 Obamacare repeal efforts.
That uncertainty has weighed on the industry. For instance, real estate investment trust (REIT) Omega Healthcare Investors, Inc. (NYSE: OHI) noted the impact of potential Medicaid reform in its third-quarter earnings conference call, discussing the failed efforts to repeal the Affordable Care Act and the ongoing ramifications for the skilled nursing facility sector.
“The risk to the SNF industry is that Medicaid and/or Medicare funding reductions might be included as a pay-for in tax reform legislation,” Senior Vice President of Operations Jeff Marshall said in the call, according to a transcript.
Aging population to blame
An aging population and increasing health care costs per person are the two factors that explain the projected growth in spending, the CBO said. For Medicare and Medicaid, the estimated and projected rates of excess cost growth were approximately 1.2% for the time periods 1985-2014 and 2018-2027. For 2028 and 2047, the rates were predicted to be about 1% for Medicare and Medicaid spending, according to the presentation.
The population of people aged 65 and older is projected to represent a much larger portion of the U.S. population by 2045, the CBO’s presentation showed. Without aging and excess cost growth, the projected spending on major health care programs as a percentage of gross domestic product (GDP) would stay flat at 6% from 2017 to 2047; instead, that figure will sit at 10.6% in 30 years.
While the CBO noted that the numbers are only projections with significant amounts of uncertainty, they point to a future in which federal outlays far outpace the money coming into the Fed’s coffers — with the amount of public debt exceeding its previous peak during World War II.
“If current laws governing taxes and spending did not change, the condition of the federal budget would worsen considerably over the next three decades,” the CBO wrote. “As a result, debt would grow larger in relation to the economy than ever recorded in U.S. history.”
Find the full presentation at the CBO.
Written by Maggie Flynn