Medicare at core of expected budget clash

The $1.2 trillion budget sequester -- which includes a 2 percent cut to Medicare -- is "the opening act in a long, protracted battle over healthcare spending," according to health policy research firm Farragut Square Group (FSG). The across-the-board spending cuts to the federal budget would take effect March 1 unless Congress takes remedial action.

"The reality is high debt and deficits are going to put more pressure on federal health spending for a long time. With the baby boomer retirement era and the [Affordable Care Act (ACA)] making healthcare spending the primary drivers of budget shortfalls, health spending will continue to be a prime target for budget savings," said FSG President Brian Fortune in a statement released Feb. 8.

Based on its analysis of latest Congressional Budget Office (CBO) fiscal estimates, FSG offered the following observations:

  • Deficit spending is on an unsustainable path. The CBO forecasts federal budget deficits will continue to approach 4 percent of gross domestic product (GDP) into the next decade, well above the level the White House and many economists consider sustainable in the long term. "That means more big budget battles for many years to come," said FSG.
  • Health spending will face greater pressure. Even if the sequester is resolved and a big budget deal is reached this year, federal health spending will continue to face enormous pressure in the future as it begins to exceed both Social Security and domestic discretionary spending as a share of GDP.
  • Medicare will continue to be a prime budget target. Medicare spending is projected to double over the next decade.  Medicare's growing share of the budget means it's "where the money is" when policymakers are looking for budget savings, FSG noted.  Medicare spending is expected to grow dramatically during the baby boomer retirement era, and therefore both providers and beneficiaries will be the focus of cost containment efforts.
  • Medicaid's true fiscal cost is unclear. Medicaid will continue to grow, but the extent of state ACA Medicaid expansion is uncertain and the "ACA's extension of Medicaid to childless adults will certainly be debated as state and federal budgets tighten," said FSG.
  • The ACA will add more fiscal pressures. CBO estimates that major healthcare programs will "grow rapidly" over the next decade as the ACA dramatically increases the number of people receiving public assistance for their healthcare.