Federal Health Care Spending As Share of GDP Could Double in 25 Years

The Congressional Budget Office (CBO) projects that the percentage of gross domestic product (GDP) attributable to federal spending on health care programs will double by 2037. In a presentation to the Organization for Economic Cooperation and Development (OECD) on November 30, 2012, Joyce Manchester, CBO’s Chief of the Long-Term Analysis Unit said that federal spending on Medicare and Medicaid currently is 5 percent of GDP, but is expected to reach 10 percent of GDP by 2037. When Social Security is added to the projection, CBO expects that the total could grow from about 10 percent of GDP to 16 percent in 25 years. By comparison, currently all federal spending except interest has averaged 18.5 percent of GFP over the last 40 years.

Manchester explained that CBO uses an extended baseline scenario (EBS) under which it is assumed that, in general, current law will continue unchanged. One exception is that CBO assumes that Medicare rates paid to physicians will not be reduced as required under the sustainable growth rate (SGR) legislation. It bases projections beyond the first ten years on historical trends in the growth of health care costs, the economy, and the population. From this data, CBO determines excess cost growth, the increase in health care spending per person minus the growth of potential GDP per person after adjusting for changes affected by demographics such as the aging of the population.

CBO projects population using estimates of births, deaths, and immigration, considering age, gender, fertility, mortality, and, for Medicare beneficiaries, estimated life expectancy. It projects GDP using a macro growth model. Projections from year 11 to year 75 are based on projections for the first ten years. The estimates are used as the basis for policy discussions.