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Healthcare Spending

Towards the end of January, the Congressional Budget Office (CBO) let out their annual report on Budget and Economic Outlook. CBO is a congressional agency of non-partisan nature, which primarily serves as the economic and budgetary analysis resource to the Capitol.

Aside from reporting on monitored economic and budgetary trends in wide areas of concern, it also supplies analysis on how most legislation will impact the national economy. The annual report released in January compiles among other thing, their estimates of the ten-year outlook on federal spending, and the economy.

The key point made by this year’s report is that the projected 2016 federal budget deficit will increase with regard to the size of the economy, and this is for the first time since 2009. The estimated Federal deficit of 2.9 percent of GDP this year is up from 2.5 percent in 2015. But on the bright side, the annual report also hints at CBO’s possible expectation that the economy will expand “solidly this year and next.”

Federal Health Care Programs will be at the center of the increased spending. This comprises Medicare, Medicaid, Children’s Health Insurance Program, and Federal subsidies for health insurance premiums. Health Care Program spending will add up to about $1.1 trillion in 2016, and projections show this will rise to $2 trillion by 2026.

Most of that spending will be in Medicare, which will contribute $692 billion to the projected $1.1 trillion. The rise in discretionary spending owes to the Bipartisan Budget Act of 2015. This act raised the spending caps in equal parts military and domestic. Another major factor in the uptick is a subsequent Omnibus bill, which acquired the money for FY 2016.

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Congressional Budget Office

Per-beneficiary based Medicare spending is set to rise at a slower annual rate over the next decade – around 1.6 percent. This estimate is derived after accounting for inflation in the intervening period. For the past few decades, the rise in per-beneficiary spending has stayed constant at 4 percent annually.

Even though there has been an inflow of baby boomers into healthcare, a lot of the spending will be on younger, and more importantly, “healthier” beneficiaries. This can offset the costs of the more costly beneficiaries who already are in the program.

One concern CBO repeatedly raises is over the long-term sustainability of the Federal spending. The portion of it in healthcare is almost 30 percent. For comparing, social security still makes up less than 20 percent. This indicates that healthcare may remain a major part of the national debt.

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