Medicare Spending May Increase $500 Billion over Next Decade

January 26, 2016 - The Congressional Budget Office (CBO) has released information showing growing deficits that are expected to increase by more than $100 billion in 2016 and expand to $1 trillion by 2022. The Committee for a Responsible Federal Budget released a summary discussing how the deficit will rise from $439 billion to $544 billion in 2016. Medicare spending could be playing a large part in the growing deficit.

There are a few key programs that are responsible for the majority of the growing deficits. CBO finds that Social Security, federal healthcare spending, and net interest are the cause of at least 90 percent of the $2.7 trillion rise in yearly spending between 2015 and 2016. Both Social Security and medical care spending take up about 67 percent of the rise in deficit.

This means that other areas of the federal budget including welfare, food stamps, defense spending, foreign aid, federal employment and more are only responsible for one-tenth of the rise in deficit. The results also show that the surplus in Medicare’s Hospital Insurance Trust Fund will be nearly depleted by 2026.

In response to the CBO report’s predictions for Medicare’s Hospital Insurance Trust Fund, Senate health committee Chairman Lamar Alexander (R-Tenn.) said in a public statement, “Millions of Americans are counting the days until they are eligible for Medicare, and today’s Congressional Budget Office report tells us that in just 10 years Medicare won’t be able to help seniors pay all of their hospital bills. I hope the president seizes on today’s grim news as an opportunity to take advantage of Republican and Democratic ideas – such as the reforms included in the Fiscal Sustainability Act – to help rescue seniors facing a bankrupt Medicare program.”  

The CBO report expects mandatory outlays to be an extra $168 billion in 2016 than the spending from 2015. In particular, spending for federal healthcare programs will account for more than 60 percent of the anticipated growth. The outlays include Medicare spending, costs in the Medicaid program and the Children’s Health Insurance Program, and the federal subsidies offered through the health insurance exchange, which are all expected to account for $104 billion of extra spending this year when compared to 2015.

“Not only is there zero urgency to fix entitlements in Washington, there’s active denial that this is an issue at all,” Freedom Partners Senior Policy Advisor Andy Koenig said in a public statement. “Meanwhile, the solvency lifespan for programs like Medicare shrinks by the day as our nation’s crippling debt grows exponentially. Our elected officials are all too happy to ignore this crisis, but we need them to pull their heads of the sand and deal with this looming crisis — immediately.”

The report illustrates why net interest spending is growing. Due to a rise in interest rates and the burgeoning federal debt, net interest spending accounts for $32 billion. Outlays from Social Security and Medicare spending from 2016 to 2026 will be responsible for about 50 percent of the predicted $2.5 trillion rise in deficit.

Unfortunately, revenue will “remain virtually flat,” according to the Committee for a Responsible Federal Budget. Additionally, federal debt is predicted to rise to $22.4 trillion by 2025. However, the CBO projections do not take into account the potential for Congress and future presidents to implement “deficit-financed tax and spending packages.”

“Were Congress to cancel future spending reductions from ‘sequestration,’ continue those temporary tax breaks not made permanent in the recent extenders package, and permanently repeal the Affordable Care Act (‘Obamacare’) 5 taxes delayed in the recent package, an additional $1.7 trillion would be added to the debt by 2026,” the brief from the Committee for a Responsible Federal Budget stated.

Non-Medicare healthcare spending such as Medicaid spending will also rise by $300 billion over the next decade, the Committee for a Responsible Federal Budget described. Medicare spending, however, is predicted to grow by as much as 90 percent. In fact, Medicare spending is expected to grow by $500 billion over the next decade. Three specific areas – Medicare, Social Security, and interest – will be responsible for as 72 percent of nominal spending growth.

While there are clearly financial obstacles standing in the way of a stronger federal budget and some changes may need to be made to reduce the federal debt and looming deficit, the Obama administration remains optimistic, according to a statement made by President Barack Obama in July 2015.

“Now, we’re often told that Medicare and Social Security are in crisis.  We hear that all the time.  And usually, that’s used as an excuse to try to cut spending on those bedrock programs,” President Obama said in a public statement. 

“But here’s the truth.  Medicare and Social Security are not in crisis, nor have they kept us from cutting our deficits by two-thirds since I took office.  Both programs are facing challenges because of the demographic trends I just talked about.  And for Medicare, that means we’ve got to keep slowing the growth of health care costs, and keep building on the progress we’ve already made in the past few years.”