Medicare, Medicaid, and ACA Contribute to $195B Deficit

Due to both outlays and revenues that increased by 8 percent in January of 2015 as compared to those outlays and revenues at the same time in 2014, the Congressional Budget Office estimated that the first four months of the 2015 fiscal year (FY) showed a budget deficit of $195 billion. CBO highlighted significant increases in outlays for Medicare and Medicaid and explained how changes under the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) contributed to those and other increased outlays in the CBO’s monthly budget review for January 2015.

CBO Report, In General

The CBO estimates of the budget deficit for the first four months of FY 2015 at $195 billion represents, as the CBO describes it, “$12 billion more than the shortfall recorded in the same span last year.” As such, as the CBO notes, “if lawmakers enact no further legislation affecting spending or revenues, the federal government will end [FY] 2015 with a deficit of $468 billion.” This would be a reduction of the deficit from 2014, which was $483 billion, or 2.8 percent of the gross domestic product (GDP).

Major Outlays

Outlays for the first four months of FY 2015 increased $91 billion since the same period of time in the preceding year and totaled $1.236 trillion. The CBO attributed that increase, in part, to a shift in the timing of certain payments from February to January this year, but still estimated that without that shift an $88 billion rise in outlays would have remained. For each of the three largest mandatory programs—Medicare, Medicaid, and Social Security—outlays rose. In particular, the CBO found that Medicaid outlays increased by $21 billion or 23 percent and Medicare outlays increased by $14 billion, or 8 percent. The increase in Medicare payments was explained by the CBO as due to “a large payment made to prescription drug plans in November of 2014 to account for unanticipated spending increases in calendar year 2014.”

Role of ACA

In regard to the 23 percent increase in Medicaid spending, the CBO noted that this significant rise was due in large part to the provisions of the ACA, which did not go into effect until January of 2014. The CBO report also focused on spending in January of 2015, which totaled an estimated $320 billion and which was $14 billion more than the outlays in the same month in 2014. A $5 billion, or 21 percent increase, in Medicaid spending contributed to that amount. The CBO also highlighted how the subsidies for health insurance coverage purchased through Health Insurance Exchanges contributed to outlays and spending for the January 2015 review. Specifically, subsidy payments were said to increase outlays by $2 billion according to the CBO. The agency explained, “those subsidies first began in January 2014; payments in January 2015 $2 billion, whereas they were only $40 million in January 2014.”