CBO: Slowing health-care costs yield big savings, but not enough to bring down our big debt

Despite lower projected health-care costs, the Congressional Budget Office sees the national debt continuing its troubling upward march over the next 25 years.

The fastest-growing part of the federal budget -- spending on health-care programs -- has slowed sharply in recent years. And while no one knows quite why that's happening, the Congressional Budget Office is predicting substantial savings.

For the 10-year period beginning in 2010, the estimated cost of Medicare and Medicaid -- the government health programs for the elderly and the poor -- has dropped by $1.23 trillion, according to revised CBO projections. In its latest look at the nation's long-term finances, released Tuesday, CBO predicts that the savings will grow by 2039  to 1.5 percent of the economy -- or, in today's dollars, roughly $250 billion a year.

That's real money by any measure. But it's not enough to brighten the CBO's otherwise gloomy forecast for the next 25 years. While annual deficits are "shrinking noticeably," the CBO said, "the long-term budget outlook is much less positive," with the portion of the national debt held by public investors forecast to climb from 74 percent of the economy today to 106 percent in 2039.

Outside World War II, the nation has never carried such a heavy debt load. Spending on health care remains the biggest driver, due primarily to huge numbers of being added to government health-care rolls.

This year, the CBO projects that the federal government will spend nearly $1 trillion -- almost a third of the entire $3.5 trillion federal budget -- on Medicare, Medicaid and insurance subsidies under the Affordable Care Act. That's more than the government will spend in any other category, including Social Security and national defense. And by 2039, the cost of health-care programs will rise sharply, growing from about 4.8 percent of GDP today to about 8 percent of GDP in 2039.

In the short term, the Affordable Care Act is a major factor in rising costs, the CBO said. In 2024, roughly 62 percent of the projected growth in health-care spending will be due to President Obama's initiative to reduce the ranks of the uninsured. By 2039, however, the aging of the population will be the most important factor.

Lori Montgomery covers U.S. economic policy and the federal budget, focusing on efforts to tame the national debt.
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