Health Care

Trust Fund Insolvency Dates Are Approaching Fast

Although most of our analysis of CBO's Long-Term Budget Outlook has focused on debt projections, CBO also makes projections about the solvency of trust funds over the long term. And, unfortunately, it finds that most major trust funds will become insolvent in the not-too-distant future.

CBO has already projected the impending disruption of construction projects due to the Highway Trust Fund depletion later this year, the 20 percent across-the-board benefit cut facing Social Security Disability beneficiaries sometime in FY 2017, and the need to address the Pension Benefit Guaranty Corporation's Multiemployer Pension fund by 2021. In this report, it finds that the the combined Social Security trust funds (assuming the SSDI program borrows from the Old-Age trust fund) and the Medicare Hospital Insurance (HI) trust fund will both run out of money around 2030. In other words, CBO projects that all the major trust funds will be depleted just over fifteen years from now. And, at that point, significant automatic benefit/payment cuts would take place.

As we touched on before, Social Security's projected finances are worse than last year, a product of lower payroll tax revenue and lower interest rates. On the other hand, the HI insolvency date has been moved back about five years due to CBO's continued downward revisions to Medicare spending. Still, these changes give a 15-year clock for both the Social Security trust fund and the HI trust fund. These trust funds would experience a sizeable cut in spending (benefits) to bring outlays in line with revenue when the trust funds are exhausted.

Exhaustion Dates for Major Trust Funds
Trust Fund
Exhaustion Date
Percent Cut Required
Highway Trust Fund FY 2015 28%
Social Security Disability Insurance FY 2017 20%
PBGC Multiemployer Fund FY 2021 87%
Medicare Hospital Insurance ~2030 ~15%
Social Security Old-Age and Survivors Insurance 2032 ~30%
Social Security Combined 2030 ~27%

 Source: CBO, CRFB calculations

Dissecting the Good Health Care Spending News in CBO's Long-Term Outlook

The Congressional Budget Office’s (CBO) new Long-Term Budget Outlook presents plenty of good news on Medicare costs yet still highlights the role that increased federal health care spending plays in driving the medium- and long-run growth in our debt. While costs are lower than in last year's projection, health care spending is still expected to increase significantly as a percent of GDP over the long term.

Projected federal health care costs overall may be down only a small amount (0.1 percent of GDP annually) since last year's report, but they have now been lowered by an astounding $900 billion cumulatively from 2011-2021. Moreover, CBO also slightly lowered its estimate of underlying health care cost growth because it is based on the historical average of spending growth since 1985 (with recent years weighted more heavily), which now incorporates one more year (2012) of very slow growth. For Medicare, this works out to slower long-term spending per beneficiary growth of about 0.07 percentage points annually.

Despite the improvements, spending on these programs is still scheduled to grow from 4.8 percent of GDP this year all the way up to 8 percent of GDP by 2039.

Continued Slow Growth for Medicare in 2014

CBO's release of the June Monthly Budget Review (MBR) gives us another data point in what has been an interesting story for Fiscal Year (FY) 2014: the slow growth of Medicare. Last month, the MBR showed Medicare spending growing by only 0.3 percent in FY 2014 compared to spending in the same time period (eight months) in FY 2013. We further noted that excluding the effects of temporary or phased-in policies (in order to illustrate Medicare's underlying growth rate) would bring the growth rate up to 2.5 percent, still well below anticipated economic growth and Medicare beneficiary growth. Incorporating the June data shows a mild acceleration in Medicare's growth rate, yet still remaining very low.

CBO Finds House VA Bill Could Cost More, Does Cost Less Than Senate Bill

The Congressional Budget Office today released a preliminary analysis of several sections of the House VA reform bill. Like the Senate bill that we analyzed last week, the legislation would increase VA health spending by allowing the VA to contract with private health providers. In fact, if appropriators fully funded the House legislation, it could cost more than the Senate bill.

Paying for A Fix to the VA Health System

Now that both chambers of Congress have passed bills aimed at improving the Department of Veterans Affairs (VA) health system, they will need reconcile their differences, likely via conference committee.

Senate Vets Bill Could Create New $500 Billion Entitlement Program

The Senate voted 93-3 yesterday on new legislation to expand veterans' benefits by allowing beneficiaries to seek out private (non-VA) health care paid for by the Department of Veterans Affairs (VA).

Determining Medicare's Underlying Growth

Despite the noted acceleration in broader health care spending this year (likely due in large part to coverage expansions), Medicare continues to grow at an astoundingly slow pace.

Only 13% of Uninsured Expected to Pay Individual Mandate Penalty

The individual mandate penalty is arguably the most controversial piece of the Affordable Care Act. It was the centerpiece of the legal challenge to the ACA, a challenge that made it to the Supreme Court, and it has been the subject of frequent debate in recent years. Yet, CBO's latest analysis of the mandate shows that the number of Americans actually expected to pay the penalty is small, even compared to the number of people remaining uninsured after the ACA's implementation.

Two New Ideas to Save Money on Drugs in Health Affairs

The House Affordable Medicines Caucus recently launched by Reps. Peter Welch (D-VT) and Keith Rothfus (R-PA) already has plenty of ideas to reform our nation's drug policies and produce cost savings for both the federal government and beneficiaries. The latest edition of Health Affairs (subscription required), though, adds a couple more ideas to encourage more efficient use of prescription drugs.

Senator Sanders Proposes Emergency VA Authorization

In response to the recent VA scandal and hospital backlogs, Senate Veterans Affairs Committee Chairman Bernie Sanders (I-VT) has proposed legislation that would address the situation and authorize additional funding for the Department of Veterans' Affairs (VA). Congressional Quarterly's (subscription required) Alan Ota explains:

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