The Government Accountability Office (GAO) recently released a report analyzing the long-term budgetary effects of the Affordable Care Act (ACA). Among other things, GAO’s report examines how its pre-ACA budgetary estimates changed after the law’s enactment in March 2010. The report also identifies key drivers of health care cost growth that may impact future budgetary projections. GAO’s report concludes growth in federal health care spending will continue to outpace growth in the broader economy, and states that “the federal budget is on an unsustainable fiscal path driven on the spending side by rising health care costs and the aging of the population.” However, the report expressly did not evaluate the potential effects of the ACA’s cost-containment provisions. GAO confined its analysis to the effects of the ACA’s spending provisions.
GAO’s report specifically compares the changes in two of its previously released long-term fiscal simulations: the “Baseline Extended” simulation, which assumes expanded health care coverage and fully implemented and effective cost-containment measures; and the “Alternative” simulation, which assumes the continuation of certain historical trends and policy preferences (i.e., the growth of federal health care coverage and phasing out of cost-containment measures). GAO found that its post-enactment Baseline Extended simulation yielded a better long-term outlook than its pre-enactment simulation. For instance, the report notes that estimated spending on Medicare in 2035—as a percentage of gross domestic product (GDP)—decreased from 6.2 percent to 4.7 percent.
GAO found that the long-term outlook under its Alternative simulation worsened in its post-enactment analysis. The report notes that projected declines in Medicare spending under the Alternative simulation were less pronounced than in the Baseline Extended simulation; that its post-enactment estimated spending on Medicare, CHIP and exchange subsidies in 2035 increased by about 0.9 percentage points (as a share of GDP); and that total federal health care spending was higher in its post-enactment simulation. GAO explains that these spending increases are attributable in part to an assumption that the ACA’s cost containment measures will begin to phase out after 2019 and that spending on exchange subsidies is not constrained.
With respect to health care spending growth, GAO expects that increased enrollment in federal health care programs—due to the aging of the population and expanded eligibility—will be the most significant driver of cost growth over the next two decades. For example, the average number of “baby boomers” turning sixty-five is expected to grow from about 7,600 per day in 2011 to over 11,000 per day in 2029. GAO also notes that it is not clear to what extent “technological change” (e.g., the development of new drugs or medical devices) will drive health care cost growth in the future, as the costs and effectiveness of changes in clinical practice brought on by such change is uncertain. According to the report, technological change has historically been the most significant driver of health care spending growth.
To view the report, which GAO released on its website on February 26, click here.