![]() ![]() Spurred by high healthcare costs stemming from factors such as innovations in medical technology and rising prices, additional cost growth was the highest in the 1980s, averaging 3.0 percentage points during that decade There was no additional cost growth from 1995–20–2015 because the economy grew faster than healthcare costs per capita (adjusted for demographic effects). More explicitly defined, additional cost growth is the rate at which healthcare costs per person, adjusted for demographic changes, outpaces the growth in GDP per person.Īdditional cost growth has varied considerably over the past 45 years, according to data from the Centers for Medicare & Medicaid Services. Additional cost growth captures the growth in healthcare spending above and beyond what is already accounted for by demographic changes and the growth in the economy. At the same time, spending may also grow due to the general growth in the economy, because as economic output rises, so too may the cost of healthcare. For instance, part of the growth in federal healthcare spending is due to the aging of the population, which increases enrollment in programs such as Medicare. Evaluating additional cost growth helps economists and policymakers isolate how much of the growth in healthcare spending is due to rising healthcare costs as opposed to other factors. The amount that the federal government spends on healthcare can rise due to a number of factors. Below is an overview of additional cost growth, its contribution to rising healthcare costs, and why it matters for fiscal sustainability. Here we focus on the latter of those factors and its effect on the federal budget. When such cost growth occurs, the amount the federal government spends on healthcare programs will rise. Additional cost growth: Generally defined as the rate at which healthcare costs, adjusting for demographic changes, outpaces the growth rate of the economy.And as more people reach age 65, enrollment and therefore spending on federal programs like Medicare rises. The changing demographics of the population: Older individuals spend more, on average, on healthcare than younger individuals.The amount the federal government spends on major healthcare programs is broadly influenced by two factors: By 2053, such spending will account for nearly 30 percent of the federal budget, exceeding the total amount spent on discretionary programs, such as defense and education, by about 40 percent. Such spending is projected to rise by 78 percent over the next decade and will exceed all other categories of federal spending in 2030. One of the largest drivers of that rising debt is federal spending on major healthcare programs, such as Medicare and Medicaid. ![]() Under current law, the nation’s debt trajectory will rise from nearly 100 percent of gross domestic product (GDP) in 2023 to 181 percent in 2053. As the recent long-term projections from the Congressional Budget Office (CBO) show, the national debt is on an unsustainable path.
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