![]() In dollars, net costs are projected to more than double over the next decade to $1.3 trillion in 2028. Medicare costs are expected to rise rapidly in the coming years. ![]() Medicare beneficiaries may enroll in some or all of these parts or in private insurance known as “Medicare Advantage” while still receiving a similar federal subsidy. Part A is funded primarily by a payroll tax while Parts B and D are funded through a combination of premiums and general revenue. Medicare consists of three programs: Part A covers hospital and inpatient care, Part B covers physician and outpatient care, and Part D covers prescription drugs. Medicare is the largest federal health care program, serving 58 million elderly and disabled people at a gross cost of $702 billion in 2017 and a cost net of premiums of $591 billion. These and other programs are discussed below. Most federal health care resources go toward financing four items: Medicare, Medicaid, the tax exclusion for employer-sponsored health insurance, and the exchange subsidies established under the Affordable Care Act. Based on Congressional Budget Office (CBO) projections and our own extrapolations, major federal health spending will rise from 5.4 percent of GDP in 2017 to 6.8 percent in 2028 and 8.4 percent by 2040. This growth is due to both automatic growth in enrollees and health care costs as well as health care expansions in the form of the Medicare prescription drug program and the Affordable Care Act.Īs the population ages and per-capita health care costs rise, nearly all forecasters expect federal health care spending to continue to grow. In dollar terms, major federal health spending has grown by 230 percent since 2000, while economy-wide prices have only risen 40 percent, and the economy has only grown by 90 percent. Spending on the major federal health programs – Medicare, Medicaid, the Children’s Health Insurance Program (CHIP), and the health insurance exchange subsidies created under the Affordable Care Act – has increased from 0.8 percent of the economy in 1970 to 3.1 percent by 2000 and 5.4 percent in 2017 (total federal resources dedicated to health care, which include tax benefits as well, total about 8 percent of the economy). The Rise of Federal Health Spendingįederal health spending has grown significantly over the past several decades and is projected to grow in the future. It is the first in a series called the American Health Care initiative, a joint collaboration of the Committee for a Responsible Federal Budget and the Concerned Actuaries Group. This paper will provide background on major health care programs in the federal budget. ![]() Given how central health care spending is to the federal budget, it is important to understand how that spending is distributed and how it will grow. Without a course correction, the result will be program insolvency, crowding out of important public priorities, and a growing federal debt. Over the long term, the rising cost of federal health care spending is clearly unsustainable.
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