![]() The exchange subsidies are projected to nearly double over the next decade due to large premium increases in the near term and general health care cost growth in later years. This category includes subsidies for insurance purchased on the exchanges ($48 billion), veterans’ health care provided through the Department of Veterans Affairs ($70 billion), and health care for active-duty military and their dependents ($49 billion). Other spending on health insurance or health care totaled $167 billion in 2017. The two programs cost $391 billion in 2017 and are projected to cost $670 billion by 2028. On average, the federal government provides about 65 percent of total funding for Medicaid and 88 percent for CHIP, though CHIP’s share will fall to 65 percent by 2021. The federal government pays for 50 to 75 percent of base Medicaid costs, depending on the state, and 90 percent of costs for the expansion population. The Children’s Health Insurance Program (CHIP) is a similarly structured program that covers almost 10 million children in a given year. Medicaid provides benefits for both acute and long-term care, covering nearly 100 million people over the course of a year. Medicaid is a state-run and jointly-financed health insurance program serving lower-income residents – including those making up to 138 percent of the poverty level in states that expanded Medicaid under the Affordable Care Act. ![]() Both factors will continue to grow beyond the end of the decade. This growth is due to both the aging of the population – the number of beneficiaries will rise from 58 million to 77 million – and growth in per-capita health spending – cost per beneficiary is projected to grow from $10,200 to $16,400. In dollars, net costs are projected to more than double over the next decade to $1.3 trillion in 2028. Medicare costs are expected to rise rapidly in the coming years. Medicare beneficiaries may enroll in some or all of these parts or in private insurance known as “Medicare Advantage” while still receiving a similar federal subsidy. Part A is funded primarily by a payroll tax while Parts B and D are funded through a combination of premiums and general revenue. Medicare consists of three programs: Part A covers hospital and inpatient care, Part B covers physician and outpatient care, and Part D covers prescription drugs. Medicare is the largest federal health care program, serving 58 million elderly and disabled people at a gross cost of $702 billion in 2017 and a cost net of premiums of $591 billion. These and other programs are discussed below. Most federal health care resources go toward financing four items: Medicare, Medicaid, the tax exclusion for employer-sponsored health insurance, and the exchange subsidies established under the Affordable Care Act. Based on Congressional Budget Office (CBO) projections and our own extrapolations, major federal health spending will rise from 5.4 percent of GDP in 2017 to 6.8 percent in 2028 and 8.4 percent by 2040. This growth is due to both automatic growth in enrollees and health care costs as well as health care expansions in the form of the Medicare prescription drug program and the Affordable Care Act.Īs the population ages and per-capita health care costs rise, nearly all forecasters expect federal health care spending to continue to grow. In dollar terms, major federal health spending has grown by 230 percent since 2000, while economy-wide prices have only risen 40 percent, and the economy has only grown by 90 percent. Spending on the major federal health programs – Medicare, Medicaid, the Children’s Health Insurance Program (CHIP), and the health insurance exchange subsidies created under the Affordable Care Act – has increased from 0.8 percent of the economy in 1970 to 3.1 percent by 2000 and 5.4 percent in 2017 (total federal resources dedicated to health care, which include tax benefits as well, total about 8 percent of the economy). The Rise of Federal Health Spendingįederal health spending has grown significantly over the past several decades and is projected to grow in the future. It is the first in a series called the American Health Care initiative, a joint collaboration of the Committee for a Responsible Federal Budget and the Concerned Actuaries Group. This paper will provide background on major health care programs in the federal budget. Given how central health care spending is to the federal budget, it is important to understand how that spending is distributed and how it will grow. Without a course correction, the result will be program insolvency, crowding out of important public priorities, and a growing federal debt. Over the long term, the rising cost of federal health care spending is clearly unsustainable.
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