Last year's Budget Control Act did not focus on the main drivers of the federal government's future fiscal imbalances, namely a “structural gap” between revenue and spending that is driven by rising healthcare costs and demographics, according to a report from the Government Accountability Office.
Budget Control Act did not focus on 'gap': GAO report
Released twice each year—and first issued in 1992—the GAO's analysis of the government's long-term fiscal outlook is intended to be “illustrative and motivational, rather than predictive,” said Susan Irving, director for federal budget analysis at the GAO. As the report notes, the analysis is a response to a request from members of Congress and is supposed to initiate dialogue on the economic effects of various policy choices.
For this report, the GAO presented a “baseline extended” model using the Congressional Budget Office's January 2012 baseline numbers, which includes the effects of discretionary spending caps and automatic procedures that the Budget Control Act established. It also presents an “alternative” model that accounts for expiring tax provisions to be extended until 2022 and in which the alternative minimum tax is indexed to inflation through 2022.
In the baseline model, the GAO report found that spending on Medicare and Medicaid would grow to more than 7% of gross domestic product by 2030, up from 5% of GDP in 2010. The analysis noted that the Medicare trustees, the CBO and the CMS actuary have all questioned whether a provision in the Patient Protection and Affordable Care Act that would restrain spending growth by reducing payment rates for certain Medicare services based on productivity gains in the economy is sustainable over the long term.
“According to CMS, healthcare productivity gains have historically been small, and may be difficult to achieve in the future due to several factors, including the labor-intensive nature of the industry and the individual customization of treatments in many cases,'' the GAO report said. The researchers then account for those concerns in the alternative model, which assumes that certain cost-containment mechanisms are not sustained over the long term. Consequently, spending on healthcare “grows much more rapidly” under these assumptions and brings Medicare and Medicaid spending to more than 8% of GDP by 2030.
The GAO will release another fiscal analysis this year, after the CBO releases new baseline numbers in August.
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