For many years, people in Washington, DC, and across the country have expressed concern about the long-term budget deficit of the United States. Increased domestic spending during the economic downturn intensified this worry, as projections about the deficit could only worsen while revenue appeared to be declining and spending was increasing.
Even more concerning to those of us following health policy is that all long-term projections have consistently shown that health care spending is the real problem in the future. Social Security and domestic spending, while large, are relatively stable in the future as a percentage of gross domestic product (GDP). Health care spending, on the other hand, has always been projected to rise much more quickly.
The most recent report from the Congressional Budget Office (CBO), however, is the most promising I’ve seen for a long, long time.
The first bit of good news is that the deficit this year is the smallest the United States has seen since 2007. At its peak in 2010, the deficit was 10% of GDP that year. This year, it’s about 3% of GDP. It appears that policies currently set in place by law should keep the deficit at that level for the next few years at least.
The second and perhaps more important piece of information was that health care spending projections remain much lower than previously seen. Just 5 years ago, when the CBO was forecasting how the Affordable Care Act might affect health care spending, it was thought that federal health care spending as a percentage of GDP would increase from 4.9% to 9.7% by 2035.
However, recent slowdowns in health care spending growth show that the CBO now projects that health care spending will only increase to 7.5% of GDP in 2035. This is a reduction of 2.2% of GDP, which significantly improves the long-term budget outlook.
Moreover, Medicare projections look equally improved. Five years ago, the CBO thought Medicare spending would increase steadily from 2010 through 2035 to almost 7% of GDP. Instead, however, Medicare spending growth slowed so that spending as a percentage of GDP actually decreased to below 3%. It’s expected to remain below that level until 2020, when it is still projected to rise more slowly than previously thought, to less than 4.5% of GDP.
A number of caveats must be addressed. Given that the projections of 5 years ago have turned out to be off, it’s self-evident that any future projections could be off, too. All long-term predictions must be taken with a grain of salt. It’s perfectly reasonable to ask if, 3 years from now, I could be writing the opposite. But the recent slowdown in health care is remarkable and like nothing we’ve seen in decades.
Plus there’s a pervasive sentiment in many who follow the budget that the CBO and politicians are always too optimistic. The last 5 years have shown us that this isn’t always the case. Sometimes the CBO’s projections are too pessimistic. That seems to be what happened with the CBO’s 2009 spending projection, as it was with the agency’s initial projections about Medicare Part D.
This isn’t the CBO’s fault, necessarily. Sometimes economic factors change in unforeseeable ways. Sometimes laws and new policies change things in ways that weren’t projected. Today’s future numbers are subject to the same exceptions.
An enormous amount of uncertainty exists around health care spending projections. The CBO gave a few examples of how small changes could affect the future. For instance, if the mortality rate increased half a percentage point per year more than expected, the federal debt would be an additional 2% of GDP higher by 2039. If Medicare or Medicaid spending increased 0.75% more per year than expected, the federal debt would be an additional 21% of GDP higher by 2039.
It’s not entirely clear why health care spending growth is slowing. Some people believe that policies in the Affordable Care Act may play a role. Others believe it’s related to the economy, which has only recently begun to pick up steam once again. It’s worth noting, however, that this reduction in health care spending is not isolated to the United States. All over the world, growth in health care spending has slowed.
Regardless of the root cause, the slowdown in health care spending is a welcome development for those concerned about the deficit and the future health of the US federal budget. There’s still much that can go wrong, and you never can tell what changes will be made by Congress in the future. But given the drumbeat of bad news about spending on health care in the United States, some good news is a refreshing change.
About the author: Aaron E. Carroll, MD, MS, is a health services researcher and the Vice Chair for Health Policy and Outcomes Research in the Department of Pediatrics at Indiana University School of Medicine. He blogs about health policy at The Incidental Economist and tweets at @aaronecarroll.
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