Health Care Spending Is Driving Future Deficits

Without Reform, CBO Projects Medicare and Medicaid Spending Will Grow Rapidly

SOURCE: AP/Thomas Kienzle

Federal spending on health care by 2019 will be the largest category of federal spending, outstripping defense, social security and all other programs if we don't take action.

By Michael Linden | October 26, 2009

• Print
• Email
• Text-size: A A A
• Share:

Download this memo (pdf)

Health care is going to be the biggest driver of federal spending increases after interest payments on the national debt. The Congressional Budget Office projects that in 2019 outlays for Medicare and Medicaid—the two largest health care programs—will be almost two full percentage points of GDP higher than they were in 2008, even after accounting for the initial cost savings included in the president’s original budget plan.

In contrast, CBO projects that all defense and non-defense discretionary spending—the spending that Congress has to appropriate each year—will actually decline by about one percentage point of GDP. By 2019, federal spending on Medicare and Medicaid will exceed the entire defense budget. Health care spending will be higher than total spending on all domestic discretionary programs and it will even surpass spending on Social Security.

The only area of federal spending that will rise more than health care is interest payments on the national debt. Of course, the size of future interest payments is in large part a product of the size of future deficits. And since those deficits are driven mostly by health care spending— spending in all other areas besides health care and Social Security  will actually decline over the next ten years—a good portion of the rise in interest payments is also attributable to increased health spending.

This trend has been decades in the making. Budget analysts and health care experts have long identified soaring health care spending as a primary factor in producing future deficits. It is not a new revelation that we face such a bleak fiscal future, and that the problem is driven largely by rising health care costs. What’s new is that policymakers are no longer sweeping the problem under the rug with budget gimmicks designed to hide the true fiscal challenge that we face.

For more information on the deficit, see:

• Deal with It: A Guide to the Federal Deficit and Debt