Health Spending Changes in CBO's March Baseline

In its March baseline, CBO made a number of changes in its projections for health care spending. Given the significance of health spending to the budget in both the near-term and long-term, it's useful to take a look at what has changed.

Overall, CBO has increased its estimate of health care spending by $25 billion through 2022 compared to the January projections, with some programs increasing costs and others projected to spend less.

Medicaid: Medicaid spending projections have increased by about $145 billion over ten years, mostly due to worse economic assumptions that increase the projected enrollment of people in the Medicaid.

Medicare Parts A and B: CBO now projects enrollment in Medicare Advantage, a program in Medicare that allows beneficiaries to receive benefits through private plans, to be higher both in 2013 and after the ten-year period compared to earlier projections, despite reforms in the Affordable Care Act that reduce payments to these plans. Higher enrollment in Medicare Advantage is projected to increase spending in both Medicare Parts A and B.

Medicare Part D: Costs in Medicare Part D, Medicare's prescription drug program, are projected to be lower by $107 billion -- primarily due to more high-volume generic drugs being available and lower drug utilization. Overall, Medicare spending has been revised down by $7 billion.

Affordable Care Act: CBO also updated its estimate of the coverage provisions of the Affordable Care Act, revising down costs somewhat from last year's estimate. Note that CBO did not similarly update its projections of the offsets of the bill, so the last comprehensive score remains the one they did for the repeal bill (HR 2) last February. Overall, the net cost of the coverage provisions is about $50 billion less from 2012-2021 compared to their estimate a year ago ($1.08 trillion compared to $1.13 trillion), $38 billion of which is accounted for by legislation passed within the past year.

Many changes in CBO's assumptions, whether by incorporating new data or altering their model, have resulted in changing estimates for the Affordable Care Act. Overall health care spending is projected to grow more slowly, which lowers spending in many different categories. Worse economic projections compared to last year have resulted in higher projected Medicaid spending and lower projected exchange spending.

At the same time, more individuals are projected to be uninsured and fewer employers are projected to offer insurance, which increases the amount of penalties paid to the government. Also, utilization of the small business tax credits for providing coverage has been less than anticipated, leading to a $20 billion drop in the projected cost of those credits. Finally, fewer people getting coverage through their employer means higher taxable income and higher revenue, which is reflected in the "other effects" category below.

CBO's baseline does not change what we already know about health care spending: we have some work to do to keep it controlled, especially over the long-term as population aging and rising costs will make that task even harder.