Drugs and Baby Boomers Driving Healthcare Spending

Blame Baby Boomers and drugs.

According to the Congressional Budget Office (CBO), the population is aging so major government healthcare spending will rise by about 6%, or $55 billion in 2016.

Prescription Drugs

The biggest driver of that 6% increase, says the CBO, is the increased spending per person on prescription drugs. Much of that increase stems from spending for people whose out-of-pocket costs for prescription drugs exceed the catastrophic limit on out-of-pocket spending.

Medicare

Of the $55 billion increase, Medicare programs are expected to increase by 6% or about $30 billion. Outlays for Medicare remain at 3.1% of gross domestic product (GDP) through 2018 and then increase each year through 2026, when they total 4.0%.

Medicaid and Kids

Medicaid spending is expected to increase by $15 billion, or 4%. That rate of growth is roughly one-quarter of the increase recorded in 2015, in part because the optional expansion of coverage authorized by the Affordable Care Act has been in place for two years and the rapid growth in enrollment that occurred during the initial stage of the expansion has begun to moderate. Federal outlays for Medicaid are stable relative to GDP for the next 10 years, totaling about 2% in each year.

Another $5 billion increase is expected to come from spending for the Children’s Health Insurance Program.

Health Exchange Subsidies

Health insurance exchange subsidies will increase by $5 billion to $43 billion in 2016. That growth is mainly attributable to an increase in the number of people who are estimated to have purchased subsidized coverage through the marketplaces. That growth largely reflects an increase in the number of people who are estimated to have purchased subsidized coverage through the marketplaces (on average, 9 million in calendar year 2016, compared with 8 million in calendar year 2015) and an increase in premiums for such coverage.

Spending on subsidies for health insurance purchased through marketplaces, along with related spending, is also stable relative to GDP over the projection period, totaling 0.4% in most years through 2026.

Federal Deficit and Boomers

The CBO said the federal budget deficit will increase in relation to economic output in fiscal 2016 for the first time since 2009. The overall federal budget deficit for 2016 will likely reach $590 billion, or 3.2% of GDP and exceed last year’s deficit by $152 billion. The deficit is growing in 2016 because revenues are up only slightly, by less than 1% ($26 billion), while spending is projected to rise by 5% ($178 billion).

Most of the growth in spending for Social Security and Medicare results from the aging of the population.

According to the CBO, the number of people age 65 or older is now more than twice what it was 50 years ago. Over the next decade, as members of the baby-boom generation age and as life expectancy continues to increase, that number is expected to rise by more than one-third, boosting the number of beneficiaries of those programs. As a result, projected spending for people age 65 or older in three large programs—Social Security, Medicare, and Medicaid—increases from roughly one-third of all federal noninterest spending in 2016 to about 4% in 2026.