Federal Health Spending as Share of GDP to Double by 2037, CBO Reports

By Steve Teske for Bloomberg BNA

Spending on federal health care programs will grow from more than 5 percent of gross domestic product today to nearly 10 percent in 2037, according to a report issued June 5 by the Congressional Budget Office.

National health care spending also will continue to rise, CBO said in the report, The 2012 Long-Term Budget Outlook. National health care spending has risen from 9.8 percent of GDP in 1985 to 16.8 percent of GDP in 2010, and under CBO’s extended baseline scenario, which generally reflects current law, national spending for health care would increase to almost one-quarter of GDP by 2037, the report said.

Key factors contributing to the growth in health care spending, the report said, have been:

• the emergence and increasing use of new medical technologies;
• rising personal income; and
• the expanding scope of health insurance coverage.

Of the total projected growth in spending on the major mandatory health care programs and Social Security between 2012 and 2037, aging accounts for 75 percent and excess cost growth accounts for 25 percent, CBO said.

“The aging of the baby-boom generation portends a significant and sustained increase in the share of the population receiving benefits from Social Security and Medicare, as well as long-term care services financed by Medicaid,” the report said.

High Growth Rates Cannot Continue Indefinitely.

CBO said health care spending on a per capita basis has grown annually 1.6 percentage points faster than the nation’s GDP over the past 25 years.

But the report said the high rates of health care spending growth “cannot continue indefinitely, because if they did, total spending on health care would eventually account for all of the country’s economic output–an impossible outcome.”

“Instead, over time, people will try to limit their spending for health care in order to maintain their consumption of other goods and services,” the report said. “Private insurers and employers will adjust the insurance coverage they offer, the benefits they provide, and the amounts and nature of their payments to health care providers.”

In addition, state governments–which pay a large share of Medicaid’s costs and have considerable influence on those costs–will need to reduce spending growth in order to balance their budgets, CBO stated.

Medicare Growth in Spending Will Slow.

Even in the absence of changes in federal law, growth in spending on Medicare, Medicaid, and health care financed through the private sector will slow gradually, the report said.

Medicare spending is likely to slow less than that of Medicaid, reflecting changes in medical practices common to all patients; regulatory changes allowed under the law; and the increasing pressure of premiums and cost-sharing amounts, such as copayments and deductibles, on enrollees’ finances, CBO said.

The report said many features of Medicare cannot be altered without changes in federal law, but a slowdown in spending growth outside of Medicare will affect the program as well.

“In particular, Medicare will experience some reduction in cost growth to the extent that actions by individuals, businesses, and states result in lower-cost ‘patterns of practice’ by physicians, slower development and diffusion of new medical technologies, and cost-limiting changes to the structure of the overall health care system,” the report said.