Between the fiscal cliff, sequestration, a potential government shut down and the debt ceiling, Washington is experiencing a seemingly endless succession of budgetary crises. Although health entitlement programs are often on the table in negotiations, there has been little agreement on the scope and direction of meaningful reform. The recent slowdown in health spending growth may strengthen the impulse on some fronts to delay action, but long-term projections leave little doubt that federal health spending will continue to be a major contributor to our fiscal woes.
This chart story pulls together essential facts on how much the federal government is spending on mandatory health care programs, how that spending affects the budget, and the hard spending and revenue trade-offs necessary to improve our fiscal outlook.
1. More than one-fifth of all government spending is for health entitlement programs.
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CBO’s latest budget numbers show that more than 13 percent of all federal spending last year went to the Medicare program, while spending on Medicaid and other health entitlement programs added almost another 8 percent. What is more, 31 percent of our spending is financed by borrowing, adding to our burgeoning debt.
2. Continued growth in mandatory federal health spending is anticipated.
CBO projects that federal spending for health entitlement programs will more than double in the next decade. The higher Medicare spending will be driven in large part by shifting demographics — with an estimated 10,000 baby boomers turning 65 each day through 2030 — as well as by rising spending per beneficiary. Actual Medicare spending will exceed these projections by large amounts if policymakers override the reductions in Medicare provider payments scheduled under the Patient Protection and Affordable Care Act (PPACA) or the pending cuts to physician fees under the SGR payment formula without finding offset savings elsewhere in the program.
Federal spending will also increase for Medicaid and for the premium and cost sharing subsidies provided within the exchanges as the ACA coverage expansions begin in 2014. The magnitude of spending increases and the distribution across Medicaid and the exchanges may differ from projections depending on state decisions about Medicaid expansion, but spending in both categories seems certain to be on an upward trajectory.
3. Medicare is a huge and growing draw from general revenues.
Dedicated Medicare revenue covers only a portion of total program expenses, and the gap is projected to grow much larger as program outlays continue to increase — leading to a growing reliance on general revenues.
The cost of inpatient and post-acute care services for current beneficiaries (Part A) is financed primarily by payroll taxes levied on current workers and their employers and by taxes on Social Security benefits for certain high-income recipients. Since 2008, annual receipts into the Part A Trust Fund have been insufficient to cover annual operating expenses. The federal government has covered the annual shortfalls through transfers from general revenue, repaying loans made by the Trust Fund during past surplus years. The Trust Fund will continue to tap general revenue until 2024 when there will be no more loans to call in.
Outpatient care (Part B) and outpatient prescription drugs (Part D) are supported in part by premiums from beneficiaries who voluntarily enroll in these programs, by fees collected from certain drug manufacturers and by transfers from states for beneficiaries who are dually enrolled in Medicare and Medicaid. Part B and D premiums are set by statute to cover about 25 percent of program costs, with higher-income beneficiaries now paying higher premiums. General revenues are used to cover the more than 70 percent of Part B and D expenses not covered by premiums or other sources.