CBO: 2019 Will Be Tipping Point for Federal Spending Tied to Older Adults

The aging population of the United States and the rising cost of health care will likely cause federal spending to skyrocket over the next decade — with a noticeable spike surfacing even sooner than previously anticipated.

Federal spending on programs that provide services for adults age 65 or older — Medicare and Social Security, namely — has steadily trended upward since at least 2009. That spending is now projected to ramp up beginning in 2019, with more than half of all non-interest federal outlays geared toward aging-related programs by 2029, according to the latest Congressional Budget Office (CBO) estimates.

CBO is a nonpartisan agency that produces independent analyses of budgetary and economic issues for Congress, releasing long-term outlook reports on an annual basis.

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“Although long-term budget projections are highly uncertain, the aging of the population and growth in per capita spending on health care would almost certainly boost federal outlays significantly relative to GDP after 2029 if current laws generally remained in effect,” CBO officials noted in their latest report, released on Monday.

Source: Congressional Budget Office

In general, CBO’s latest budget and economic estimates present a mixed bag for home-based care providers, particularly those with revenues leaning heavily on Medicare and Medicaid reimbursement. The estimates, for instance, further suggest the silver tsunami may have finally arrived and that certain labor conditions are primed to improve, but the startling pace of federal spending tied to the aging population could potentially give health care officials more ammo when arguing for cuts.

The Medicare Payment Advisory Commission (MedPAC) recently told Congress that the Medicare base payment rate for 2020 should be reduced by 5%, lowering home health spending by as much as $2 billion.

Over the next decade, as members of the baby-boom generation age and as life expectancy increases, the number of people age 65 or older is expected to continue to rise — by about one-third, from 16% of the population in 2018 to 20% in 2029.

Today, the number of people age 65 or older is more than twice what it was 50 years ago.

While the sheer number of older adults is rising, so too is the cost of their health care, as individuals are more frequently living with multiple chronic and complex health conditions. Managing these medically complex populations and keeping them at home — in the lowest-cost setting — has become a top priority for non-medical home care agencies and home health providers alike.

In 2005, spending directly allocable to older adults accounted for about 35% of federal non-interest outlays. That rose to about 40% in 2018, according to CBO, when total non-interest spending was about $3.8 trillion. Growth in spending for Social Security and Medicare will account for about three-quarters of the total increase in mandatory federal spending over the next 10 years, CBO projects.

Almost all of the spending for people age 65 or older in the federal budget is for mandatory programs — spending that is generally governed by statutory criteria and is not normally constrained by the annual appropriation process.

As a share of GDP, which measures the value of economic activity within a given country, mandatory spending for people age 65 or older grew from 5.8% in 2005 to 7.5% in 2018. That percentage is projected to grow to 9.8% by 2029.

On the labor front, CBO expects strong employment growth in 2018 to carry into 2019, maintaining the tight labor market in which home-based care providers currently operate. From 2020 to 2023, however, employment growth is expected to slow sharply, with an anticipated rise in the unemployment rate and a larger hiring pool for providers looking to fill vacancies.

The full CBO outlook report is available here.

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