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From Health Law Daily, January 19, 2016

Health care spending to contribute to ballooning deficit as economy expands

By Mary Damitio, J.D.

The federal budget deficit is expected to grow significantly over the next 10 years and will be “considerably larger” than it has been in the past 50 years, due in part to increases in Social Security and health care spending. The Summary of the Budget and Economic Outlook prepared by the Congressional Budget Office (CBO), which sets forth projections for the next decade, also anticipates that the economy will expand “solidly” over the next two years, followed by more modest growth (CBO Report, January 19, 2016).

Budget deficit. In 2016, the deficit will be $544 billion, which is $105 billion more than the previous year and will be the first time the deficit has risen in relation to the size of the economy since 2009. The report notes, however, that approximately $43 billion of the increase is attributable to shifts in the timing of government payments.

The CBO predicts that the budget deficit will increase modestly through 2018, but is then projected to increase more sharply, and reach $1.4 trillion by 2026.

Mandatory outlays. The CBO expects mandatory outlays to be $168 billion higher in 2016 than the previous year due to significant growth in Social Security outlays and spending on health care programs such as Medicare, Medicaid, the Children’s Health Insurance Program (CHIP), and the health insurance subsidies for insurance purchased through the exchanges that were created by Sections 1401 and 1402 of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148).

Debt. The growing deficit is expected to drive up debt as growth in spending on Social Security, health care, and interest payments will outpace growth in revenues over the next decade. The CBO notes that the deficits would drive high debt that could have “serious negative consequences” including, increases in federal spending on higher interest rates, lower productivity and wages, less flexibility for lawmakers to use spending policies to meet unanticipated challenges, and an increased likelihood of a U.S. fiscal crisis.

Previous projections. The CBO now expects a cumulative deficit over the 10-year period that is $1.5 trillion larger than the $7.0 trillion it projected in August 2015. Half of the increase is attributable to laws that were enacted in August that reduced corporate and individual income taxes. The CBO also boosted its projections for Medicaid outlays due to higher-than-expected spending on newly eligible beneficiaries under Section 2001 of the ACA.

Economic growth. The CBO also predicts solid economic growth over the next few years that will reduce the slack in the labor market and encourage greater participation in the labor force. The reduction in slack will lead to increased inflation and interest rates. The CBO also expects more moderate economic growth in the following years that will be constrained by slow growth in the labor force. The ACA and other aspects of the current fiscal policy are expected to dampen the supply of labor and growth of output through 2020. However, in those later years, output is projected to grow more quickly than it has in the past ten years.

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