Economic Snapshot

Health care costs slow down

In this week’s release of the February Budget and Economic Outlook report, the Congressional Budget Office reported that we are experiencing slower health care spending growth than historical rates would have indicated, and that this slowdown is projected to have significant budgetary effects. From the March 2010 baseline report to the current baseline, this slowdown has lowered estimates of federal spending for Medicare and Medicaid in 2020 by $200 billion, or around 15 percent for each program.

For years, health spending has been growing significantly faster than the economy and remains the main driver behind projected long-term debt growth. However, in recent years, CBO’s long-term debt outlook (under the extended baseline scenario) has improved, partly due to slower growth in health care costs. In August, CBO projected that federal spending on mandatory health programs—Medicare, Medicaid, SCHIP, health exchanges, etc.—would grow at an average annual 8.3 percent, or 3.5 percentage points faster than economic growth from 2012-2022. February’s budget report lowers this growth rate to 3 percent over this same period, a 16 percent drop.

Growth rate of projected federal spending on health care slowing

4.8% GDP growth
8.3% growth in federal health spending 3.5% excess growth
4.8% GDP growth
7.8% growth in federal health spending 3.0% excess growth
New projection

See more work by Rebecca Thiess and Ethan Pollack