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From Health Reform WK-EDGE, April 16, 2018

U.S. health costs continue to rise over next 10 years

By Matt Pavich, J.D.

The Congressional Budget Office’s (CBO) annual Budget and Economic Outlook for the years 2018-2028 projects that federal outlays for Medicare, Medicaid, and subsidies under the auspices of the Affordable Care Act (ACA), and the Children’s Health Insurance Program (CHIP) will increase to 6.6 percent of the gross domestic product (GDP) in 2028, up from the current 5.3 percent, largely due to growth in Medicare spending (CBO Report, April 9, 2018).

Outlays for health insurance subsidies and related spending are projected to increase by 21 percent, more than $10 billion, in 2018. The CBO suggests this increase is largely due to an average 34-percent increase in premiums for the second-lowest-cost plan in ACA health insurance marketplaces. The report further projects that from 2019–2028, the average spending growth will decrease to just under 5 percent per year, and that under current law, outlays for health insurance subsidies and related spending will increase by approximately 60 percent over the projection period, increasing from $58 billion in 2018 to $91 billion by 2028.

ACA. The report also projects growth in revenue from health care taxes, from $18 billion this year to $39 billion by 2028. It predicts that the largest of these taxes will be the ACA’s excise tax imposed on many health insurers, with $14 billion in revenue coming from those taxes in 2018. The report suggests that revenue will steadily increase to $24 billion by 2028. In addition, the ACA’s taxes on brand-name drug manufacturers and importers its tax on are predicted to raise $3 billion each year from 2019 to 2028. The recent moratorium on the medical devices tax was extended; this tax will not generate revenue until 2020 and will raise approximately $4 billion in 2028. The excise tax on high-cost employment-based health plans, known as the "Cadillac tax," will resume in 2022 and the report projects revenues totaling $7 billion in 2028 under the current law.

The report predicts that deficits would rise if delays in implementing certain ACA taxes established are either extended or made permanent. For example, permanent repeal of the medical device tax, Cadillac tax, and annual fee on health insurance providers would decrease revenues by $324 billion over the 2019–2028 period.

Individual mandate penalty repeal. The recent repeal of the ACA’s individual mandate penalty, which the CBO estimated caused more people to enroll in the program, is expected to result in fewer Medicaid enrollees in 2019. The CBO lowered its projected outlays for health insurance subsidies and related spending by $206 billion (or 23 percent) for the 2018–2027 period, mostly due to the elimination of individual mandate penalty. This is also expected to result in fewer enrollees in the ACA marketplaces, thereby reducing subsidies provided by the federal government for that coverage. The report also projects that the repeal of the mandate will result in higher premiums.

Medicare Trust Funds. Two trust funds, the Hospital Insurance Trust Fund and the Supplementary Medical Insurance (SMI) Trust fund, make payments to hospitals and for other services covered by Medicare. The HI trust fund makes payments to hospitals and providers of postacute-care services, while the SMI Trust Fund makes payments for outpatient services and prescription drugs. The HI Fund, the larger of the two, has income derived mostly from the Medicare payroll tax and in 2017, those taxes accounted for 86 percent of the $297 billion in noninterest income credited to the trust fund. In 2018, that noninterest income is expected to increase to $302 billion in 2018, and eventually to $491 billion by 2028, an annual 5-percent rise. However, the HI Fund’s annual expenditures are expected to increase annually by 7 percent, going from $305 billion in 2018 to $605 billion in 2028. The report projects that under current laws, expenditures will outstrip noninterest income in all years through 2028, with the fund becoming exhausted by 2026.

The SMI trust fund has one account that pays for physicians’ services and other health care provided on an outpatient basis under Part B of Medicare, and another that pays for prescription drug benefits under Part D. Most of its income is derived from transfers from the general fund of the Treasury, which are automatically adjusted to cover the gap between revenue and spending. Thus, the fund cannot become exhausted.

ReportsLetters: CBOReports NewsFeed AgencyNews CadillacTaxNews CHIPNews EmployerMandateNews GeneralNews IndividualMandateNews MedicaidNews MedicaidExpansionNews MedicalDeviceTaxNews MedicarePartANews MedicarePartBNews MedicarePartCNews MedicarePartDNews

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