Reports and Resources

By: 
PFM

 
What is the CBO’s long-term budget outlook?
 
On June 16, 2015, the Congressional Budget Office (CBO) released its long-term budget outlook.[i] Under the assumption that currently relevant laws remain the same, this annual report provides extended baseline projections of future federal spending and revenues that focus on the upcoming 25-year period ending in 2040. This includes projections for major health care programs including Medicare, Medicaid, and the Children’s Health Insurance Program (CHIP). Importantly, the report is not a prediction of spending in the future, but rather a demonstration of the effects current policies will have on the economy over time if left unchanged.
 
What does the 2015 Budget Outlook say about Medicare?
 
Most notably, CBO projects that the Medicare Hospital Insurance (HI) Trust Fund’s date of insolvency remains around 2030, the same projection as last year.  Without substantial policy changes to the way Medicare is funded, the HI trust fund will be exhausted early in the 10-year period after 2025, near or before 2030.

  • In 2014, gross federal spending for Medicare was $600 billion, and net spending was $505 billion (spending less offsetting revenues) – a 2.8 percent net spending increase from 2013. 
  • Between 1985 and 2014, net federal spending for Medicare rose from 1.5 percent of GDP to 2.9 percent of GDP. By 2020, Medicare spending as a percentage of GDP will rise to 5.1 percent.
  • Over the next 10 years, overall spending on Medicare is expected to reach $1.2 trillion, or 4.3 percent of GDP, and grow by an average of nearly 7 percent per year. In 2014, Medicare enrollment was 53 million; enrollment is projected to be 73 million in 2025. This is due in large part to the retirement of the baby boomer generation, which increases the number of Medicare beneficiaries by approximately one-third over the next decade.
  • However, Medicare spending per beneficiary is also projected to decrease due to an increase in Medicare-eligible patients with multiple chronic conditions and, as the baby boomer generation ages, a larger share of Medicare beneficiaries who are significantly older than 65 and more costly to care for than newly-eligible beneficiaries. Per beneficiary spending is expected to increase at an average annual rate of 1.2 percent between 2015 and 2050.  

What does it mean for the program?
 
Despite the fact that Medicare spending, and health care spending in general, have slowed in recent years, the long-term outlook for Medicare has changed very little. Spending is still expected to accelerate in the next two decades and the program is projected to go bankrupt by, or before, 2030 if no adjustments are made. As the report notes, there are very few things we know for sure about the recent slow growth in spending, it is expected to persist for several years. CBO’s long-term budget assessments are released annually, and projected solvency dates have and will continue to be slightly adjusted to account for current trends in spending. But the long-term outlook remains the same. Medicare is on a path to insolvency and requires reform to ensure financial security.
 
Click here to access the full 2015 CBO Long-Term Budget Outlook.


[i] https://www.cbo.gov/publication/50250

 

Date: 
Wednesday, September 23, 2015