Projected growth puts Medicare, Medicaid at risk for cuts

A new report shows that rising health care costs are driving federal spending on entitlement programs.

By Joel B. Finkelstein, AMNews staff. Feb. 14, 2005.

Washington -- Congressional budget cutters already may have targeted Medicare and Medicaid, but a recent government report is likely to add fuel to the fire.

The Congressional Budget Office's recent projections show that mandatory spending on entitlement programs, mainly Social Security, Medicare and Medicaid, will increase dramatically over the next 10 years. During that period, these programs together are expected to grow by about 25% relative to the size of the economy, from 8.4% of gross domestic product in 2004 to 10.4% in 2015.

And although Social Security is drawing the most attention right now, that program will be outstripped as early as next year by the much more rapid growth in Medicare and Medicaid spending. While overall outlays for these mandatory programs are projected to grow by 5.7% a year, that growth is largely driven by spending in Medicare and Medicaid, projected to rise at average annual rates of 9.0% and 7.8% respectively through 2015, according to the CBO report.

The report also found that the growth is the result of health care costs and demographics.

"Social Security, Medicare and Medicaid accounted for 72% of mandatory spending in 2004," the authors wrote. "Buoyed by the rapidly rising costs of health care and an increase in the elderly population, that share will grow steadily over the next 10 years."

Their findings spurred talk by federal lawmakers of the need to control costs. "We must get serious about putting our financial house in order, beginning with short-term deficit reduction and then long-term control of entitlement spending," Senate Budget Committee Chair Judd Gregg (R, N.H.) said in a statement.