Transcript Congressional Budget Office

Conference on the Long-Term Fiscal Crisis
University of Southern California
January 2010
The Long-Term Budget Outlook in the
United States and the
Role of Health Care Entitlements
Presented by
Donald Marron
Georgetown Public Policy Institute
Based on the conference paper by
Joyce Manchester
Jonathan A. Schwabish
Congressional Budget Office
The views expressed in this presentation are those of the authors and should not
be interpreted as those of the Congressional Budget Office.
Motivation
 In the absence of significant changes in policy, rising
costs for health care will cause federal spending to grow
much faster than the economy, putting the federal
budget on an unsustainable path.
 By 2035, CBO projects that the share of total
government spending for health care will more than
double to about 13 percent of GDP, up from about
6 percent of GDP in 2008.
 CBO projections indicate that federal debt will continue
to grow much faster than the economy over the long
run.
The Congressional Budget Office Budget Estimates
 The Congressional Budget Office (CBO) has prepared
budgetary projections through 2080 under two different sets
of assumptions about federal laws and policies.
– Extended-Baseline
• adheres most closely to current law, following CBO’s 10-year baseline
budget projections for the next decade and then extending the baseline
concept beyond that 10-year window.
– Alternative Fiscal Scenario
• represents one interpretation of what it would mean to continue today’s
underlying fiscal policy. This scenario deviates from CBO’s baseline
even during the next 10 years because it incorporates some policy
changes that are widely expected to occur and that policymakers have
regularly made in the past.
Total Spending for Health Care Under CBO’s
Extended-Baseline Scenario
50
Actual
Projected
45
40
Percentage of GDP
35
30
All Other Health Care
25
20
15
Medicaid
10
5
Medicare
0
1960
1970
1980
1990
2000
2010
2020
2030
Source: Congressional Budget Office, Long-Term Budget Outlook, Figure 2-1. June 2009.
2040
2050
2060
2070
2080
Federal Revenues and Noninterest Spending, by
Category, Under CBO’s Extended-Baseline Scenario
40
40
Projected
35
35
30
30
25
25
Revenues
20
20
15
10
Medicare and Medicaid
Other Federal
Noninterest Spending
15
10
5
5
Social Security
0
1962
1965
1968
1971
1974
1977
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
2010
2013
2016
2019
2022
2025
2028
2031
2034
2037
2040
2043
2046
2049
2052
2055
2058
2061
2064
2067
2070
2073
2076
2079
2082
0
Year
Source: Congressional Budget Office, Long-Term Budget Outlook, Figure 1-1. June 2009.
Percentage of GDP
Percentage of GDP
Actual
Federal Revenues and Noninterest Spending, by
Category, Under CBO’s Alternative Fiscal Scenario
40
40
Actual
35
35
30
30
25
25
Revenues
20
20
15
10
Medicare and Medicaid
Other Federal
Noninterest Spending
15
10
5
5
Social Security
0
1962
1965
1968
1971
1974
1977
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
2010
2013
2016
2019
2022
2025
2028
2031
2034
2037
2040
2043
2046
2049
2052
2055
2058
2061
2064
2067
2070
2073
2076
2079
2082
0
Year
Source: Congressional Budget Office, Long-Term Budget Outlook, Figure 1-2. June 2009.
Percentage of GDP
Percentage of GDP
Projected
Three Reasons That the Fiscal Challenge Is
Especially Acute
 Current policy as perceived by many people would
generate much larger deficits than current law as
captured in CBO’s baseline.
 Federal debt is already very large relative to GDP by
historical standards.
 Population aging and rising health spending will
continue to push up federal spending under current
law.
Federal Debt Held by the Public as a
Percentage of GDP
200
Actual
Projected
180
160
Alternative
Fiscal
Scenario
Percentage of GDP
140
120
100
80
60
Extended-Baseline
Scenario
40
20
0
1850
1860
1870
1880
1890
1900
1910
1920
1930
1940
1950
Source: Congressional Budget Office, Long-Term Budget Outlook, June 2009.
1960
1970
1980
1990
2000
2010
2020
2030
2040
2050
Factors Explaining Future Federal Spending on
Medicare, Medicaid, and Social Security
25
20
Percentage of GDP
Effect of Excess
Cost Growth Only
15
Effect of Interaction Between
Aging and Excess Cost Growth
Effect of Aging Only
10
5
In the Absence of Aging and
Excess Cost Growth
0
2009
2019
2029
2039
Source: Congressional Budget Office, Long-Term Budget Outlook, June 2009.
2049
2059
2069
2079
Federal Fiscal Imbalance Under CBO’s Long-Term
Budget Scenarios
Projection Period
25 Years (2009-2033)
50 Years (2009-2058)
75 Years (2009-2083)
25 Years (2009-2033)
50 Years (2009-2058)
75 Years (2009-2083)
Revenues
Outlays
Fiscal Gap
Extended-Baseline Scenario
21.6
23.7
2.1
22.0
24.6
2.6
22.7
25.9
3.2
Alternative Fiscal Scenario
19.9
25.3
19.6
26.5
19.9
28.0
5.4
6.9
8.1
Source: Congressional Budget Office, Long-Term Budget Outlook, June 2009.
Longer-Term Budget Projections
 CBO’s Long-Term Model
–
–
–
–

Limitations of Long-Term Projections
–
–

Social Security
Medicare and Medicaid
All other spending generally grows with GDP
Taxes
Uncertainty, especially for health programs
Interaction with macroeconomic conditions
Value of Long-Term Projections
–
–
Highlight trends
Provide baseline for policy changes
Rising Health Care Spending
Excess Cost Growth, in Percentage Points
10
Medicare and Medicaid
8
6
4
2
0
-2
Total National Health
Expenditures
-4
-6
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
Excess Cost Growth in Spending for Health Care
1975 to 1990
1990 to 2007
1975 to 2007
Medicare
Medicaid
All Other
Total
2.9
1.7
2.3
3.2
0.8
1.9
2.3
1.3
1.8
2.6
1.4
1.9
Source: CBO, Long-Term Budget Outlook, Table 2-3 (June 2009).
Assumptions About Excess Cost Growth in
Spending for Health Care Over the Long Term
Rate in 2020
(Historical Average,
1975-2007)
Medicare
Medicaid
All Other Spending
for Health Care
Annual Decline in
Rate, 2020-2083 Average Rate,
(Percent)
2020-2083
Rate in 2083
2.3
1.9
1.5
4.5
1.5
0.6
0.9
0.1
1.8
4.5
0.5
0.1
Source: CBO, Long-Term Budget Outlook, Table 2-4, June 2009.
Policy Options That Could Produce Budgetary
Savings in the Long Run
 Create Accountable Care Organizations
 Bundle Payments to Hospitals and Other Providers
 Provide Additional Information About Treatments’
Effectiveness
 Expand the Use of Preventative and Wellness Services
and Primary Care
 Increase Cost Sharing by Patients
 Modify the Tax Treatment of Employment-Based Health
Insurance
Imposing Ongoing Pressure to Increase Efficiency in
the Health Care System
 Reduce Annual Updates in Medicare’s Payments to
Reflect Expected Productivity Gains
 Reduce Medicare Payments in Higher-Spending Areas
 Combine Increased Discretion to Change Medicare with a
Fallback If Savings Were Not Obtained
 Limit the Growth of Medicare’s Subsidy of Premiums