Oct. 11—Recent federal debt projections—led by rising healthcare costs—may push a debt deal used to resolve the ongoing budget and borrowing limit standoffs in Washington.

The nonpartisan Congressional Budget Office reported in September that an ongoing short-term slowdown in debt accumulation by the federal government will be followed in a few years by a burst of new debt as healthcare costs spike. 

The annual report concluded that a recent decline in the annual accumulations of debt will continue until 2018 before demographic and spending trends again increase annual deficits.

“Moreover, the pressures of an aging population, rising healthcare costs, and an expansion of federal subsidies for health insurance would cause mandatory spending to rise as a percentage of GDP after 2018,” the CBO noted.

As one of the main drivers of the federal debt spending, federal healthcare spending will rise from 4.6 percent of GDP in 2013 to 8.0 percent of GDP in 2038, the CBO projected.

The increase in healthcare spending, according to the CBO, will be driven by the aging of the population; rising health care spending per beneficiary; and Affordable Care Act exchange subsidies and Medicaid expansions.

Federal healthcare spending, which accounts for just over half of the government’s total entitlement spending, is expected to comprise almost three-quarters of the spending increase in mandatory program over the next 25 years.

Those projections fueled the push by some congressional Republicans for a debt-reduction deal as part of negotiations to reopen the federal government and raise the nation’s borrowing limit. Any major debt reduction deal would likely include big cuts to federal healthcare programs, given their share of total spending growth.

“We have known for some time that the combination of population aging and rising health costs would cause severe strain in federal finances,” James Capretta, a fellow at the Ethics and Policy Center, wrote in a Health Affairs post. “CBO’s new forecast is emphatic confirmation that the strain we have long anticipated is upon us, and the sooner we take corrective action, the better.”

Publication Date: Friday, October 11, 2013