In its latest budget outlook update, the Congressional Budget Office has once again marked down its forecast for Medicare spending, but the nonpartisan agency also noted that spending on the program (and on Medicaid) is still expected to grow faster than the economy, reaching 14.4 percent of the gross domestic product in 2022.
CBO Director Douglas Elmendorf said in a press conference broadcast live on C-SPAN on Wednesday that over the last three years the agency has marked down Medicare spending projections for 2019 by about $100 billion due to program-specific factors.
"The slower growth in Medicare spending that we've seen is consistent with slower growth of healthcare costs more generally in the economy," he said. "What exactly is going on in the federal health programs, and the health system more generally, is not entirely clear to us or other analysts."
Elmendorf said he'd guess that factors contributing to the slower growth of the federal healthcare programs and general healthcare costs include the weak state of the economy; slower growth of spending on prescription drugs; restructuring the way healthcare is delivered; provider concerns about current or anticipated payment rates; changes in the way providers are getting paid in Medicare and by private insurers; and households paying for more costs out-of-pocket.
"There are a lot of possibilities," he said. "Obviously, if you talk to people in the healthcare system, they understand the imperative of their finding ways to do their work more efficiently, but how to connect up that set of activities going on with specific changes in the numbers is very hard and we don't know to what extent the slow down we've seen in the federal health programs, or in national health spending, in the last several years will persist or not."
In terms of the federal budget overall, the CBO estimates the federal deficit for fiscal year 2012 will total $1.1 trillion, down slightly from the agency's March estimate of $1.2 trillion. For the rest of this year, the economic recovery will continue, the unemployment rate will stay about 8 percent and the rate of inflation in consumer prices will stay low.
Under the policy changes that are due to take effect in January, the deficit will shrink to an estimated $641 billion in 2013 but the fiscal belt tightening brought about by the expected policy changes will lead to economic changes "that will probably be considered a recession," with declines in the GDP and an increase in the unemployment rate.
If lawmakers do not allow the policy changes to take place, GDP will grow and the unemployment rate would remain about the same in the short term, but in the long term, "the level of federal debt … would be unsustainable from both a budgetary and an economic perspective."
"I think the stakes of fiscal policy are very high right now," Elmendorf said. "We have very serious budget challenges and very serious economic challenges in this country. The decision that Congress makes about tax and spending policies can have profound effects on both our budget path and our near-term and longer-term economic outcomes."