The aging population and higher per-person health spending driven by high prescription drug costs will contribute to increased federal spending over the next decade, according to an economic outlook update from the Congressional Budget Office.
The update released Tuesday (PDF) predicts this year will mark the first increase in the budget shortfall since 2009, as the federal budget deficit will rise to 3.2% of the gross domestic product from 2.5% in 2015.
Medicare accounts for 21% of the $2.4 trillion total projected increase in outlays between 2016 and 2026, while other major healthcare programs account for 13%.
After adjusting for a shift in the timing of payments, federal spending for major healthcare programs are estimated to increase by $55 billion, or 6%, in 2016. Half of this is from Medicare, which is seeing high enrollment and can expect a 15% increase in spending on prescriptions this year.
Spending on prescription drugs under the Medicare Part D program increased by more than 17% in 2014, according to the CMS. Lawmakers, including Democratic presidential candidate Hillary Clinton, have targeted pharmaceutical companies for skyrocketing costs in the past few years.
CBO expects Medicaid enrollment in 2016 will be mostly flat as the initial stages of expansion in certain states have passed. Medicaid outlays are expected to increase $15 billion or 4% this year.
Outlays for the Children's Health Insurance Program will increase by $5 billion this year because of increased federal matching of state payments that started at the beginning of this fiscal year.
Spending on health insurance premium subsidies for the public marketplaces created by the Affordable Care Act is expected to increase $5 billion in 2016 to total $43 billion.
The CBO now estimates spending from Medicare, Medicaid, exchange subsidies and CHIP will be $15.51 trillion over the next decade. This is a slight decrease from a $15.56 trillion estimate in March. The January estimate was $15.61 trillion.
A $1.7 billion increase in mandatory spending by 2026 is driven mostly by an aging population using more Social Security and Medicare. The number of people 65 and older is expected to increase by more than a third in the next 10 years. Spending on people 65 and older in Social Security, Medicare and Medicaid are expected to increase from about one-third of all federal non-interest spending in 2016 to about 40% in 2026.
In the current baseline, outlays for Medicare are about 3% of GDP through 2018 and then increase each year through 2026, when they are 4%. Outlays for Medicaid are stable at 2% each year for the next 10 years and spending on marketplace subsidies are stable at 0.4% most years through 2026.
The CBO noted that growth in healthcare spending was slower in the past several years than it has been historically. The non-partisan agency anticipates spending per enrollee to increase more rapidly in the coming years and predicts labor force participation will decrease as a result of health insurance subsidies phasing out as income grows and as more people enroll in marketplaces. The tax code structure also contributes to this.
“The amount of labor that people are willing to supply is projected to continue to decline over the next few years as people continue adjusting their employment circumstances in response to the provisions of the Affordable Care Act,” according to CBO.
CBO anticipates lower Medicare reimbursement rates than were predicted in March because prices will not increase as much for goods linked to the rates and automatically adjusted in the fee-for-service portion.
