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Presentation at the 15th Annual Meeting of the OECD’s Working Party of
Parliamentary Budget Officials and Independent Fiscal Institutions
April 13, 2023
Julie Topoleski
Director of the Labor, Income Security, and Long-Term Analysis Division
Long-Term Projections of
Health Care Spending and the
Implications for the Federal Budget
For more information about the meeting, see www.oecd.org/gov/budgeting/parliamentary-budget-officials.
1
Data source: Centers for Medicare & Medicaid Services.
National Health Expenditures
Health care spending in the
United States has grown
over time. Since 1960, it has
more than tripled as a
percentage of gross
domestic product (GDP).
0
5
10
15
20
25
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020
Percentage of Gross Domestic Product
2
Congressional Budget Office, The 2022 Long-Term Budget Outlook (July 2022), www.cbo.gov/publication/57971.
Federal Spending, by Category
Over the long term, net
spending for interest and
outlays for the major health
care programs and Social
Security are projected to rise
in relation to GDP; other
spending, in total, is
projected to decline.
3
Congressional Budget Office, The Budget and Economic Outlook: 2023 to 2033 (February 2023), www.cbo.gov/publication/58848.
Spending on the Major Federal Health Care Programs
Over the next decade,
federal spending on the
major health care programs
grows by more than one
percent of GDP in CBO’s
projections. The increase is
driven primarily by growth in
Medicare spending.
0
1
2
3
4
5
6
2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033
Medicare Medicaid
Premium Tax Credits and Related Spending Children's Health Insurance Program
Percentage of Gross Domestic Product
4
Congressional Budget Office, Federal Subsidies for Health Insurance Coverage for People Under 65: 2022 to 2032 (June 2022), www.cbo.gov/publication/57962.
Subsidies for Employment-Based Health Insurance Coverage
As a percentage of GDP,
federal subsidies for
employment-based
coverage are projected to
grow over the coming
decade.
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032
Percentage of Gross Domestic Product
5
CBO’s 10-year baseline budget projections provide a benchmark for estimates of
the costs of legislative proposals. Those projections are based, in part, on
detailed modeling of the health care system.
The agency uses a more aggregate and mechanical approach to project
spending for the two decades that follow that initial 10-year projection period.
How CBO Projects Spending on Health Care
6
CBO’s analysts start with the most recent data on Medicare spending available.
They then use the following pieces to build the projections:
▪ Medicare population (based on CBO’s projections of the total population by
age and sex and on data on Medicare participation),
▪ Price (Medicare’s payment rates),
▪ Changes in the age-and-sex mix of the Medicare population,
▪ Anticipated policy changes, and
▪ Growth in Medicare spending that cannot be explained by those four
factors.
10-Year Projections for Medicare
7
Congressional Budget Office, The 2022 Long-Term Budget Outlook (July 2022), www.cbo.gov/publication/57971.
Composition of Growth in Outlays for the Major Health Care
Programs and Social Security, 2022 to 2052
Much of the growth in
spending on the major
health care programs and on
Social Security results from
the aging of the population.
Growth in spending on the
major health care programs
is also driven by cost growth
above and beyond that
accounted for by
demographic changes or the
growth of potential GDP per
person.
8
Congressional Budget Office, The Demographic Outlook: 2023 to 2053 (January 2023), www.cbo.gov/publication/58612.
Aging of the Population
In CBO’s projections, the
number of people ages 25 to
54, which partially
determines the number of
people employed, grows
more slowly than the
number of people age 65 or
older, who are less likely to
work and who are generally
eligible for Social Security
and Medicare.
9
CBO uses its beneficiary cost index to calculate the effects of demographic changes on health care spending. For spending on Medicare, that index accounts for information on age,
sex, time until death, and the original reason for beneficiaries’ Medicare entitlement. For Medicaid, the index incorporates information about average spending by type of beneficiary:
child, adult, aged, or disabled.
How CBO Defines Additional Cost Growth
Growth in Health
Outlays
Additional Cost
Growth
Growth in
Potential Nominal
GDP per Person
Growth in CBO’s
Beneficiary Cost
Index
10
To estimate additional cost growth in the health care sector, CBO used essentially the same method that the Centers for Medicare & Medicaid Services’ Office of the Actuary uses to
produce the 75-year projections of Medicare spending for its annual report to the Congress. Within that framework, CBO uses its own estimates of key parameters: an income-
technology elasticity of 1.27, an insurance elasticity of −0.20, and a price elasticity of −0.55. For a discussion of the methods underlying projections by the Office of the Actuary, see
Stephen K. Heffler and others, Centers for Medicare & Medicaid Services, Office of the Actuary, memorandum about the long-term projection assumptions for Medicare and aggregate
national health expenditures (April 22, 2020), https://tinyurl.com/msfjx6te (PDF).
The estimates of additional cost growth in CBO’s projections move linearly from
the rates at the end of the 10-year budget period to the estimated rates at the end
of the 30-year projection period.
CBO’s estimate of additional cost growth in health care overall in 2052 is
0.6 percent.
CBO’s Estimate of Additional Cost Growth
11
Growth in real national income per person has been—and, in CBO’s
estimation, will continue to be—the most significant factor in the growth of
spending on health care. The agency projects that in 2052, that factor would
account for just over half of the additional cost growth.
Increasing medical prices have been—and, in CBO’s estimation, will continue
to be—another significant factor in the growth of spending on health care. The
agency projects that in 2052, such increases would account for slightly less
than half of the additional cost growth.
Changes in out-of-pocket spending for health care have historically been an
important factor in the growth of spending on health care. However, CBO projects
that, under current law, the out-of-pocket share of national health expenditures
would not change over the 30-year projection period. That is, the agency does
not expect changes in out-of-pocket spending to contribute to additional cost
growth in 2052.
Three Key Factors Contributing to Additional Cost Growth
in the Health Care Sector
12
Ongoing Analysis
▪ Budget baseline projections
– Impact of the coronavirus pandemic
– Demographics (fertility, mortality)
▪ Insurance coverage projections
▪ Projections of health care spending
Recent Reports
▪ A description of who was uninsured in
2019 and why
▪ Review of health care prices by payer
▪ Single-payer series: budgetary effects,
financing, macroeconomic effects
▪ Drug prices and innovation
Recent Analysis of Legislation,
Including Cost Estimates
▪ Surprise billing
▪ Legislation in response to the coronavirus
pandemic
– Medicaid continuous coverage
– Timing of the public health emergency
▪ Expansion of Affordable Care Act
subsidies in the American Rescue Plan
Act and in the proposed reconciliation
legislation
▪ Medicare expansions: dental, vision,
hearing
▪ Drug price negotiation
▪ Medicare Part D benefit design
▪ Immunosuppressant drugs
What Types of Products About Health Care Does CBO Create?
13
The Budget and Economic Outlook: 2023 to 2033 (February 2023),
www.cbo.gov/publication/58848.
The Demographic Outlook: 2023 to 2053 (January 2023),
www.cbo.gov/publication/58612.
The 2022 Long-Term Budget Outlook (July 2022),
www.cbo.gov/publication/57971.
Federal Subsidies for Health Insurance Coverage for People Under 65:
2022 to 2032 (June 2022), www.cbo.gov/publication/57962.
More of CBO’s work on health care can be found at
www.cbo.gov/topics/health-care.
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Long-Term Projections of Health Care Spending and the Implications for the Federal Budget

  • 1. Presentation at the 15th Annual Meeting of the OECD’s Working Party of Parliamentary Budget Officials and Independent Fiscal Institutions April 13, 2023 Julie Topoleski Director of the Labor, Income Security, and Long-Term Analysis Division Long-Term Projections of Health Care Spending and the Implications for the Federal Budget For more information about the meeting, see www.oecd.org/gov/budgeting/parliamentary-budget-officials.
  • 2. 1 Data source: Centers for Medicare & Medicaid Services. National Health Expenditures Health care spending in the United States has grown over time. Since 1960, it has more than tripled as a percentage of gross domestic product (GDP). 0 5 10 15 20 25 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 Percentage of Gross Domestic Product
  • 3. 2 Congressional Budget Office, The 2022 Long-Term Budget Outlook (July 2022), www.cbo.gov/publication/57971. Federal Spending, by Category Over the long term, net spending for interest and outlays for the major health care programs and Social Security are projected to rise in relation to GDP; other spending, in total, is projected to decline.
  • 4. 3 Congressional Budget Office, The Budget and Economic Outlook: 2023 to 2033 (February 2023), www.cbo.gov/publication/58848. Spending on the Major Federal Health Care Programs Over the next decade, federal spending on the major health care programs grows by more than one percent of GDP in CBO’s projections. The increase is driven primarily by growth in Medicare spending. 0 1 2 3 4 5 6 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 Medicare Medicaid Premium Tax Credits and Related Spending Children's Health Insurance Program Percentage of Gross Domestic Product
  • 5. 4 Congressional Budget Office, Federal Subsidies for Health Insurance Coverage for People Under 65: 2022 to 2032 (June 2022), www.cbo.gov/publication/57962. Subsidies for Employment-Based Health Insurance Coverage As a percentage of GDP, federal subsidies for employment-based coverage are projected to grow over the coming decade. 0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 Percentage of Gross Domestic Product
  • 6. 5 CBO’s 10-year baseline budget projections provide a benchmark for estimates of the costs of legislative proposals. Those projections are based, in part, on detailed modeling of the health care system. The agency uses a more aggregate and mechanical approach to project spending for the two decades that follow that initial 10-year projection period. How CBO Projects Spending on Health Care
  • 7. 6 CBO’s analysts start with the most recent data on Medicare spending available. They then use the following pieces to build the projections: ▪ Medicare population (based on CBO’s projections of the total population by age and sex and on data on Medicare participation), ▪ Price (Medicare’s payment rates), ▪ Changes in the age-and-sex mix of the Medicare population, ▪ Anticipated policy changes, and ▪ Growth in Medicare spending that cannot be explained by those four factors. 10-Year Projections for Medicare
  • 8. 7 Congressional Budget Office, The 2022 Long-Term Budget Outlook (July 2022), www.cbo.gov/publication/57971. Composition of Growth in Outlays for the Major Health Care Programs and Social Security, 2022 to 2052 Much of the growth in spending on the major health care programs and on Social Security results from the aging of the population. Growth in spending on the major health care programs is also driven by cost growth above and beyond that accounted for by demographic changes or the growth of potential GDP per person.
  • 9. 8 Congressional Budget Office, The Demographic Outlook: 2023 to 2053 (January 2023), www.cbo.gov/publication/58612. Aging of the Population In CBO’s projections, the number of people ages 25 to 54, which partially determines the number of people employed, grows more slowly than the number of people age 65 or older, who are less likely to work and who are generally eligible for Social Security and Medicare.
  • 10. 9 CBO uses its beneficiary cost index to calculate the effects of demographic changes on health care spending. For spending on Medicare, that index accounts for information on age, sex, time until death, and the original reason for beneficiaries’ Medicare entitlement. For Medicaid, the index incorporates information about average spending by type of beneficiary: child, adult, aged, or disabled. How CBO Defines Additional Cost Growth Growth in Health Outlays Additional Cost Growth Growth in Potential Nominal GDP per Person Growth in CBO’s Beneficiary Cost Index
  • 11. 10 To estimate additional cost growth in the health care sector, CBO used essentially the same method that the Centers for Medicare & Medicaid Services’ Office of the Actuary uses to produce the 75-year projections of Medicare spending for its annual report to the Congress. Within that framework, CBO uses its own estimates of key parameters: an income- technology elasticity of 1.27, an insurance elasticity of −0.20, and a price elasticity of −0.55. For a discussion of the methods underlying projections by the Office of the Actuary, see Stephen K. Heffler and others, Centers for Medicare & Medicaid Services, Office of the Actuary, memorandum about the long-term projection assumptions for Medicare and aggregate national health expenditures (April 22, 2020), https://tinyurl.com/msfjx6te (PDF). The estimates of additional cost growth in CBO’s projections move linearly from the rates at the end of the 10-year budget period to the estimated rates at the end of the 30-year projection period. CBO’s estimate of additional cost growth in health care overall in 2052 is 0.6 percent. CBO’s Estimate of Additional Cost Growth
  • 12. 11 Growth in real national income per person has been—and, in CBO’s estimation, will continue to be—the most significant factor in the growth of spending on health care. The agency projects that in 2052, that factor would account for just over half of the additional cost growth. Increasing medical prices have been—and, in CBO’s estimation, will continue to be—another significant factor in the growth of spending on health care. The agency projects that in 2052, such increases would account for slightly less than half of the additional cost growth. Changes in out-of-pocket spending for health care have historically been an important factor in the growth of spending on health care. However, CBO projects that, under current law, the out-of-pocket share of national health expenditures would not change over the 30-year projection period. That is, the agency does not expect changes in out-of-pocket spending to contribute to additional cost growth in 2052. Three Key Factors Contributing to Additional Cost Growth in the Health Care Sector
  • 13. 12 Ongoing Analysis ▪ Budget baseline projections – Impact of the coronavirus pandemic – Demographics (fertility, mortality) ▪ Insurance coverage projections ▪ Projections of health care spending Recent Reports ▪ A description of who was uninsured in 2019 and why ▪ Review of health care prices by payer ▪ Single-payer series: budgetary effects, financing, macroeconomic effects ▪ Drug prices and innovation Recent Analysis of Legislation, Including Cost Estimates ▪ Surprise billing ▪ Legislation in response to the coronavirus pandemic – Medicaid continuous coverage – Timing of the public health emergency ▪ Expansion of Affordable Care Act subsidies in the American Rescue Plan Act and in the proposed reconciliation legislation ▪ Medicare expansions: dental, vision, hearing ▪ Drug price negotiation ▪ Medicare Part D benefit design ▪ Immunosuppressant drugs What Types of Products About Health Care Does CBO Create?
  • 14. 13 The Budget and Economic Outlook: 2023 to 2033 (February 2023), www.cbo.gov/publication/58848. The Demographic Outlook: 2023 to 2053 (January 2023), www.cbo.gov/publication/58612. The 2022 Long-Term Budget Outlook (July 2022), www.cbo.gov/publication/57971. Federal Subsidies for Health Insurance Coverage for People Under 65: 2022 to 2032 (June 2022), www.cbo.gov/publication/57962. More of CBO’s work on health care can be found at www.cbo.gov/topics/health-care. Relevant CBO Publications