Question

Discuss the current government health care expenditures in the United States. In your assignment, argue whether or not you believe that the government can continue to spend at the current level. Support your position.

Answer 1

Answer:

Us spends more on health care than the other country within the world, and an outsized share of that spending comes from the federal.

In 2017, the U.S spent about $3.5 trillion, or 18 percent of GDP, on health expenditures – quite twice the typical among developed countries.

Of that $3.5 trillion, $1.5 trillion is directly or indirectly financed by the federal. In other words, the federal dedicates resources of nearly 8 percent of the economy toward health care. By 2028, we estimate these costs will rise to $2.9 trillion, or 9.7 percent of the economy. Over time, these costs will still grow and consume an increasing share of federal resources.

Over the future, the rising cost of federal health care spending is clearly unsustainable. Without a course correction, the result is going to be program insolvency, crowding out of important public priorities, and growing federal debt.

Given how central health care spending is to the federal budget, it's important to know how that spending is distributed and the way it'll grow. This paper will provide background on major health care programs within the federal budget. It’s the primary during a series called the American Health Care initiative, a joint collaboration of the Committee for a Responsible Federal Budget and therefore the Concerned Actuaries Group.

The Rise of Federal Health Spending

Federal health spending has grown significantly over the past several decades and is projected to grow within the future. Spending on the main federal health programs – Medicare, Medicaid, the Children’s Insurance Program (CHIP), and therefore the insurance exchange subsidies created under the Affordable Care Act – has increased from 0.8 percent of the economy in 1970 to three.1 percent by 2000 and 5.4 percent in 2017 (total federal resources dedicated to health care, which include tax benefits also, total about 8 percent of the economy). In dollar terms, major federal health spending has grown by 230 percent since 2000, while economy-wide prices have only risen 40 percent, and therefore the economy has only grown by 90 percent. This growth is thanks to both automatic growth in enrollees and health care costs also as health care expansions within the sort of the Medicare prescription program and therefore the Affordable Care Act.

As the population ages and per-capita health care costs rise, nearly all forecasters expect federal health care spending to still grow. Supported Congressional Budget Office (CBO) projections and our own extrapolations, major federal health spending will rise from 5.4 percent of GDP in 2017 to six.8 percent in 2028 and eight.4 percent by 2040.

Meanwhile, health care will consume a bigger share of the budget over time. In 1970, major health programs made up only 5 percent of the budget. That share increased to twenty percent by 2000 and 28 percent by 2017. By 2028, one-third of federal dollars not spent on interest will go toward health spending, and by 2040, nearly 40 percent will. Even these estimates don't account for the erosion of the assets resulting from the tax exclusion for employer-sponsored insurance.

Where Does the Cash Go?

Most federal health care resources go toward financing four items: Medicare, Medicaid, the tax exclusion for employer-sponsored insurance, and therefore the exchange subsidies established under the Affordable Care Act. These and other programs are discussed below.

Medicare

Medicare is that the largest federal health care program, serving 58 million elderly and disabled people at a gross cost of $702 billion in 2017 and a price net of premiums of $591 billion. Medicare consists of three programs: Part A covers hospital and inpatient care, Part B covers physician and outpatient care, and Part D covers prescribed drugs. Part A is funded primarily by a payroll tax while Parts B and D are funded through a mixture of premiums and general revenue. Medicare beneficiaries may enroll in some or all of those parts or privately insurance referred to as “Medicare Advantage” while still receiving an identical federal subsidy.

Medicare costs are expected to rise rapidly within the coming years. In dollars, net costs are projected to a quite double subsequent decade to $1.3 trillion in 2028. This growth is thanks to both the aging of the population – the number of beneficiaries will rise from 58 million to 77 million – and growth in per-capita health spending – cost per beneficiary is projected to grow from $10,200 to $16,400. Both factors will still grow beyond the top of the last decade.

Medicaid and CHIP

Medicaid may be a state-run and jointly-financed insurance program serving lower-income residents – including those making up to 138 percent of the poverty line in states that expanded Medicaid under the Affordable Care Act. Medicaid provides benefits for both acute and long-term care, covering nearly 100 million people over the course of a year. The Children’s Insurance Program (CHIP) may be a similarly structured program that covers almost 10 million children during a given year.

The federal pays for 50 to 75 percent of base Medicaid costs, counting on the state, and 90 percent of costs for the expansion population. On average, the federal provides about 65 percent of total funding for Medicaid and 88 percent for CHIP, though CHIP’s share will fall to 65 percent by 2021. The 2 programs cost $391 billion in 2017 and are projected to cost $670 billion by 2028.

Exchange Subsidies and Other Spending

Another spending on insurance or health care totaled $167 billion in 2017. This category includes subsidies for insurance purchased on the exchanges ($48 billion), veterans’ health care provided through the Department of Veterans Affairs ($70 billion), and health look after the active-duty military and their dependents ($49 billion).

The exchange subsidies are projected to just about double the subsequent decade thanks to large premium increases within the near term and general health care cost growth in later years. Both military health care and veterans’ health care are discretionary programs, meaning that they're appropriated annually instead of allowed to function automatically and currently are constrained by overall caps on discretionary spending. We estimate that these three areas will increase to a complete of about $250 billion by 2028.

The Employer-Sponsored Insurance Exclusion and Other Tax Benefits

The tax code also provides several subsidies for health care and insurance. Far and away the most important is that the exclusion for employer-provided insurance, which the Office of Management and Budget (OMB) estimate to possess, costs about $340 billion in 2017. An estimated 156 million people, a majority of the non-elderly population, receive coverage through their or their family’s employer. The exclusion is indirectly limited by the 40 percent “Cadillac” tax on high-cost insurance plans, but that tax won't enter effect until 2022 and has already had its start date delayed twice. Though the entire number of individuals receiving employer-sponsored insurance is predicted to fall slightly over the subsequent decade, the value of the subsidy will increase to just about $650 billion by 2028 as health care costs rise (or higher if the Cadillac tax is repealed or further delayed).

Health care spending is already an outsized part of the federal budget and is projected to grow further over the future. Medicare, Medicaid, CHIP, military health care, individual insurance, and health tax preferences for employment-based insurance already totaled 7.9 percent of GDP in 2017 and can grow to 9.7 percent by 2028. This growth has important implications for the budget, as health spending will become a bigger share of the budget and a minimum of partially driving the expansion in debt projected within the future. Controlling health spending should be a central part of the agenda to urge federal debt in check.

This paper is a component of the American Health Care Initiative, a joint collaboration of the Committee for a Responsible Federal Budget and therefore the Concerned Actuaries Group dedicated to informing the general public, policymakers, and key stakeholders regarding the fiscal and managerial challenges confronting our health care system. As a part of the initiative, the 2 organizations will each publish and promote a series of papers, briefings, presentations, and other materials intended to energize a way needed conversation about improving the sustainability and accessibility of our health care system and managing the rising costs that threaten our current system.