The aging population isn’t the biggest factor that will drive up government health-care spending in the coming decades: It’s “excess cost growth,” in other words, medical price inflation in general.
At least, that’s what Keith Hall, director of the nonpartisan Congressional Budget Office, was expected to tell the American Academy of Actuaries at their Washington conference Nov. 4. The speech itself was closed to the press, according to the group, but the CBO released Hall’s planned slide presentation, which gave an overview of the long-term budget outlook and the changes needed to bring it closer to balance.
In the slides, gross federal spending on major health care programs is seen rising from 6.1 percent of GDP to 10.1 percent between 2016 and 2046, an increase of four percentage-points. To give some idea of perspective, defense spending was 3.3 percent of GDP in 2015 and hasn’t seen 6.0 percent of GDP since 1986.
It’s the composition of the reasons for the rising costs that are the problem. In his presentation, Hall was to say 1.8 percentage point of that 4 percent increase in spending was going to be due to an aging population, which would see more people eligible for Medicare.
But the bigger driver, the remaining 2.2 percentage points of that 4 percent increase, are expected to be excess cost growth, which is defined as the amount by which rising health spending per beneficiary, adjusted for aging, outpaces potential GDP growth per person.
While little can be done about a country’s aging profile, short of a new baby boom or immigration by younger-aged immigrants, health-care experts often to point to excess cost growth as the key to overhauling the health care system and solving its constant budget woes.
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