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PFM

What You Need To Know: CBO’s 2014 Long-Term Budget Outlook and Medicare

What is CBO’s long-term budget outlook?

On July 15, 2014, the Congressional Budget Office (CBO) released its long-term budget outlook.[i] Under the assumption that relevant laws remain the same, this annual report projects 10 years and 25 years of future federal spending and revenues, including for the nation’s major health insurance programs – 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 2014 Budget Outlook say about Medicare?

The most notable piece of information regarding Medicare is that the CBO has extended the solvency of Medicare’s Hospital Insurance (HI) Trust Fund by five years – from 2025 to 2030– compared with its most recent estimate. (Click here to learn more about the HI Trust Fund and how Medicare is financed.)
Other important data noted in the report include:

  • In 2013, gross federal spending on Medicare was $585 billion, and net spending was $492 billion (spending less offsetting revenues).
  • Between 1985 and 2013, net federal spending for Medicare rose from 1.5 percent of GDP to 3.0 percent.
  • Excess cost growth in Medicare, or cost growth that exceeds growth in gross domestic product (GDP), is expected to be low during the next few years and then to rise to about 0.7 percent per year by the end of the decade.
  • In 2012, Medicare accounted for 22 percent of total spending on health care in the United States – this is exceeded only by private sector health care spending, which is 35 percent of total spending but covers a much larger segment of the population (63.9 percent, versus Medicare’s 15.7 percent).[ii]
  • Spending on Medicare is expected to sharply increase over coming decades, due in large part to the growing aging population – the retirement of the baby boomer generation will increase the number of Medicare beneficiaries by approximately one-third over the next decade.

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 will go bankrupt by 2030 if no adjustments to the program are made.  As the report notes, there are very few things we know for sure about the recent trend in slow spending, except that – if current data and history serve as indicators – it will not last. 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 2014 CBO Long-Term Budget Outlook.


[i] https://www.cbo.gov/sites/default/files/45471-Long-TermBudgetOutlook_7-29.pdf

[ii] http://www.census.gov/hhes/www/hlthins/data/incpovhlth/2012/Table8.pdf

 

Date: 
Wednesday, August 6, 2014