Tuesday, 05 Feb 2013

U.S. spending on Social Security and healthcare will double to $3.2 trillion a year over the next decade, threatening a sharp rise in the national debt unless Congress acts to avoid the danger, congressional researchers warned on Tuesday.

A report from the nonpartisan Congressional Budget Office did not put forth a plan to resolve the long-term imbalance between revenues and spending on retirement and healthcare benefits. But it said that action taken now would help minimize the economic impact of whatever course lawmakers can agree on.

"Unless the laws governing these programs are changed – or the increased spending is accompanied by corresponding reductions in other spending, sufficiently higher tax revenues, or a combination of the two – debt will rise sharply relative to (the U.S. economy) after 2023," the CBO warned.

The report, CBO's latest on the U.S. budget and economic outlook, comes as President Barack Obama and Congress prepare for a showdown over the federal deficit in coming months.

"Deciding now what policy changes to make to resolve that long-term imbalance would allow for gradual implementation, which would give households, businesses and state and local governments time to plan and adjust their behavior," CBO said.

The agency estimated last June that Social Security and federal health programs would account for more than one-quarter of U.S. gross domestic product by 2037 unless laws were changed.

Federal spending for Social Security, Medicare and Medicaid stood at $1.6 trillion in 2012, with healthcare spending alone at $885 billion.

CBO predicts that annual outlays for those programs alone will top $3 trillion by 2023, with Obama's healthcare reform law adding another $134 billion in costs to provide coverage for 26 million people through new state-based healthcare exchanges.

Expanded health coverage under the reform law would cost $1.3 trillion over the next ten years, slightly higher than its forecast in August, and reach 38 million people in 2022 through the exchanges and an expansion of the Medicaid program for the poor beginning Jan. 1, 2014, the CBO said.

Meanwhile, 7 million fewer people were forecast to have employer-sponsored health insurance in 2022 due to Obama's Patient Protection and Affordable Care Act. The estimate is up from August, when CBO predicted a drop of 4 million people with employer plans.

The agency said the change was due largely to the lower marginal tax rates Congress passed on Jan. 1, which would reduce tax benefits associated with insurance provided by employers.

Medicare, the federal healthcare program for 50 million elderly and disabled Americans, is expected to remain at around 3 percent of GDP until 2019 before climbing to 3.5 percent of the economy by 2023, for a total of $1.1 trillion in spending.

Medicaid is forecast to grow to 2.2 percent of GDP by 2023 when it is projected to total $572 billion in federal spending and 84 million beneficiaries.

Social Security outlays, estimated to account for almost one quarter the government's spending next year, are projected to remain near 5 percent of GDP in most years through 2018 and then climb to reach 5.5 percent of GDP in 2023.

Despite forecasts for rising spending for Medicare and Medicaid, both are expected to grow more slowly per capita over the coming decade than they were just six months ago.

The change was due partly to expectations for lower enrollment and a larger number of young, healthier beneficiaries in the Medicaid coverage pooll.

It also reflected a slowdown in spending growth for Medicare's Part A hospital, Part B physician and Part D prescription drug benefits, as younger retirees from the baby boom generation have entered the pool of beneficiaries.

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