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Congress Taps Brakes on Medicare but Health Spending Speeds On

By Kerry Young, CQ Roll Call

January 27, 2016 --Though Congress has taken steps to control Medicare spending, more sweeping efforts will be needed to keep government health programs from consuming ever-larger shares of the economy, according to the Congressional Budget Office (CBO).

The latest overview of the nation's economy notes Medicare spending on each beneficiary is expected to grow at an average annual rate of 1.6 percent from fiscal 2016 to 2026, a significant drop from the 4 percent annual gains seen routinely between 1985 and 2007, CBO said in the report released Monday. But spending by federal health programs will consume about 6.6 percent of the gross domestic product in 2026, up from an estimated 5.5 percent this year.

"It's at least a step in the right direction," Loren Adler, research director for the nonprofit Committee for a Responsible Federal Budget, said of the Medicare cost controls. "That being said, it's very difficult to continually have health care spending outpacing our economy."

Medicare, the federal health program for the elderly and disabled, could itself account for 4.7 percent of GDP in 2026 when factoring in federal spending and beneficiaries' out-of-pocket expenses. That will make it more difficult to pay for other priorities: Discretionary spending on non-entitlement programs may shrink from 6.5 percent of the economy to 5.2 percent in the 2016–2026 period, according to the report.

CBO estimates that payments for Medicare, Medicaid and other major health programs will nearly double to $2 trillion by fiscal 2026. The aging of the baby boom generation is an important driver, with Medicare enrollment expected to swell by about 20 million people over the next decade to 75 million. The 2010 health law also expanded Medicaid, originally designed for Americans living in or near poverty. Medicaid enrollment may rise by 8 million, to 85 million over the next decade. Other expenses are for the Children's Health Insurance Program and insurance exchanges created by the health law.

"Health care pretty much is the fiscal problem at this point. We have been throwing darts at the board on health care for the last 50 years trying to figure out how to control costs," Adler said. "In our defense, we are doing better than we previously did with tamping down growth in Medicare costs."

CBO on Monday said Medicare payments for many services, excluding doctors' reimbursement, currently are set to lag the expected growth in the costs for the individuals and organizations that provide them. Calculations, or inputs, used to set payments may not fully reflect the expenses involving in paying for staffing and utilities and equipment, according to the budget office.

Under CBO's economic projections, those payment rates are expected to increase by about 2 percent per year on average, roughly 1 percentage point lower than the rate at which prices of inputs to Medicare services are projected to increase.

Another approach to controlling Medicare costs has been to seek more contributions from those enrolled in the program. Spending for Medicare, excluding premiums and other offsetting receipts and adjusted for shifts in the timing of certain payments, will rise by $28 billion, or 5.2 percent, a drop from last year's 6.8 percent increase, CBO said. This was partly due to provisions regarding contributions in last year's budget deal (PL 114-75), CBO said.

Medicare costs also are being contained in part by an influx of younger enrollees, who tend to be in better health. As the baby boomers age, though, their medical bills are expected to add significantly to the nation's fiscal health burdens. Even the near-term picture for Medicare finances concerns policy advisers and lawmakers alike.

CBO remains more pessimistic about tax dollars collected for Medicare hospital payments, a key benchmark of Medicare finances, than the program's trustees. The scorekeeping agency last year said the pool of tax dollars collected for the program's hospital trust fund would have a balance of only $57 billion at the end of fiscal 2025. Given Medicare's rate of spending, the fund appeared unlikely to remain solvent through fiscal 2030, the latest estimate in the annual trustees report. While not predicting an exact year, CBO in its 2015 outlook said the trust fund would probably be exhausted "early in the decade after 2025."

On Monday, CBO more than halved its estimate for the trust fund's remaining balance in fiscal 2025, to $25 billion. That amount wouldn't be enough to cover the expected $68 billion shortfall in the following year. Senate Health, Education, Labor and Pensions Chairman Lamar Alexander, R-Tenn., said that President Obama should seize on the CBO projections and work with Democrats and Republicans to help rescue seniors facing a bankrupt Medicare program.

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