CBO: Government Healthcare Spending to Double by 2022 to $1.8 Trillion

In the next decade, the cost of government healthcare programs like Medicare and Medicaid are expected to more than double, according to the Congressional Budget Office’s economic outlook for fiscal years 2012 to 2022, and if lawmakers don’t substantially restrain the spending, it will result in “unsupportable” federal debt levels.

By 2022, federal spending on healthcare programs will climb to $1.8 trillion, or 7.3% of the gross domestic product, the CBO expects.

“Rising spending for Medicare accounts for about one-half of that growth, rising spending for Medicaid accounts for roughly one-third, and the remaining growth stems primarily from the new subsidies to be provided through health insurance exchanges beginning in 2014,” the report says.

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The rapidly aging population is spurring the huge projected growth in healthcare spending, with the CBO expecting Medicare spending to rise 90% in the next 10 years, even accounting for assumed reductions in reimbursements.

“CBO estimates that sequestration in 2021 will reduce Medicare funding by nearly $8 billion in 2022,” the budget office notes.

Even if the fiscal policies specified by current law come to pass, budgetary challenges over the longer term remain—and the challenges will be much more acute if those policies do not remain in place. Under both CBO’s baseline and its alternative fiscal scenario, the aging of the population and rising costs for health care will push spending for Social Security, Medicare, Medicaid, and other federal health care programs considerably higher as a percentage of GDP. If that rising level of spending is coupled with revenues that are held close to the average share of GDP that they have represented for the past 40 years (rather than being allowed to increase, as under current law), the resulting deficits will increase federal debt to unsupportable levels. To prevent that outcome, policymakers will have to substantially restrain the growth of spending for those programs, raise revenues above their historical share of GDP, or pursue some combination of those two approaches.

Check out The Budget and Economic Outlook: Fiscal Years 2012 to 2022 here.

Written by Alyssa Gerace