When we released The 2014 Long-Term Budget Outlook on July 15th, a number of people asked for more information about how much we have revised projected federal health care spending during the past several years. This blog post tries to answer their questions.
CBO now projects that, if current laws remained generally unchanged, net federal spending for the government’s major health care programs in 2039 would equal 8.0 percent of gross domestic product (GDP)—1.6 percentage points, or about 15 percent, less than the 9.6 percent the agency projected in 2010 (see the figure below). That revision stems in large part from the observed slowdown in health care spending in recent years, but it also includes the effects of other factors; some of those factors reduced projected spending, and others increased it.
The programs included in the calculations are Medicare, Medicaid, the Children’s Health Insurance Program, and subsidies for insurance purchased through exchanges. The projections are part of CBO’s “extended baseline,” which generally reflects current law by matching the agency’s baseline projections for the first 10 years and extending that concept into later years. (See Appendix C of the July 15th report for a summary of the changes in CBO’s long-term projections over the past two decades. All of the long-term projections from 2010 discussed in this blog post incorporate the enactment of the Affordable Care Act in March 2010 and have been adjusted to account for changes in the estimation of GDP made by the Bureau of Economic Analysis in July 2013.)
Technical Changes in Projected Spending for Medicare and Medicaid Over the 2011–2020 Period
The revision to CBO’s projections over the course of the past four years reflects three types of changes: legislation enacted since 2010, modifications to the agency’s economic outlook during that period, and technical changes (which encompass everything apart from legislation and changes in the economic outlook). CBO does not attempt to allocate the revisions to its long-term projections across those three categories as the agency does for its 10-year projections. However, in CBO’s judgment, the net downward revision to projected health care spending as a percentage of GDP in the past four years is more than accounted for by technical factors—that is, downward technical changes were greater than the net downward revision because they were offset, in part, by other types of changes in the other direction.Changes in projections for technical reasons may encompass changes made for a wide variety of reasons, including new information from survey and agency data on programs’ enrollment and spending, improvements in the methods CBO uses to project spending, and the effects of administrative actions and judicial decisions.
In the case of the major health care programs, actual federal spending in recent years has been lower than we had anticipated, and analysis by CBO and others suggests that such spending will grow more slowly in the future than we projected several years ago. (For more discussion, see pages 32 to 37 of our recent report; a CBO working paper from last August, Why Has Growth in Spending for Fee-for-Service Medicare Slowed?; and a presentation I made last September, Comment on ‘Is This Time Different? The Slowdown in Healthcare Spending’.)
CBO has also revised down projected spending for those programs because of other technical factors. For example, revisions to projected enrollment have led to reductions in projected Medicaid spending. The two largest changes in projected enrollment since 2010 have been: a reduction in estimated enrollment stemming from the Supreme Court decision that made the expansion of Medicaid eligibility under the Affordable Care Act optional for states; and a reduction in projected growth in enrollment by elderly and disabled individuals. Projected Medicaid enrollment in 2020 is now lower by about 5 million people than CBO anticipated in 2010, a reduction of roughly 5 percent.
Taking all of the technical revisions together, CBO has substantially revised down its 10-year projections of federal spending for Medicare and Medicaid from those made four years ago, as shown in the following table:
Technical Revisions to Projected Federal Spending Between June 2010 and July 2014 | ||||||||
Fiscal Year | Medicare (Net of Offsetting Receipts) |
Medicaid | ||||||
Billions of Dollars | Percent | Billions of Dollars | Percent | |||||
2011 | -25 | -5 | -5 | -2 | ||||
2012 | -35 | -7 | -10 | -4 | ||||
2013 | -50 | -9 | -15 | -5 | ||||
2014 | -60 | -11 | -25 | -8 | ||||
2015 | -65 | -11 | -40 | -11 | ||||
2016 | -65 | -11 | -45 | -11 | ||||
2017 | -80 | -12 | -50 | -11 | ||||
2018 | -100 | -16 | -55 | -12 | ||||
2019 | -115 | -16 | -70 | -14 | ||||
2020 | -120 | -16 | -80 | -15 | ||||
Total: 2011-2020 | -715 | -12 | -395 | -10 | ||||
Source: Congressional Budget Office. Notes: Numbers are rounded to the nearest $5 billion. The Long-Term Budget Outlook issued in June 2010 used CBO's March 2010 projections for the first 10 years, updated to incorporate the effects of the Affordable Care Act. The July 2014 volume uses CBO's April 2014 projections for the first 10 years. |
Total Changes in Projected Spending for Medicare and Medicaid in 2020
New legislation and changes to CBO’s economic outlook since 2010 have also led to revisions in our projection of spending for Medicare and Medicaid. For 2020 (with numbers rounded to the nearest $5 billion):- http://www.cbo.gov/sites/all/themes/cbo/images/template/bullet.png) 0.1em 0.5em / auto no-repeat scroll border-box border-box transparent;">The total downward revision to CBO’s projection of spending for Medicare (net of offsetting receipts) has been $90 billion (or 12 percent), consisting of the $120 billion downward technical revision shown in the table and a net upward revision of $30 billion stemming from legislation and changes in the economic forecast;
- http://www.cbo.gov/sites/all/themes/cbo/images/template/bullet.png) 0.1em 0.5em / auto no-repeat scroll border-box border-box transparent;">The total downward revision to CBO’s projection of spending for Medicaid has been $70 billion (or 13 percent), consisting of the $80 billion downward technical revision shown in the table and a net upward revision of $10 billion stemming from legislation and changes in the economic forecast.