Projected growth puts Medicare, Medicaid at risk for cuts

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.

And on the House side, Budget Chair Jim Nussle (R, Iowa) said: "The report makes it abundantly clear that we must get mandatory spending under control. We cannot sustain this level of spending."

In his second term, the president has placed a priority on Social Security reform. But his proposals actually would require putting more money into the system in the first few years. In contrast, the administration has been seeking short-term cost savings in the health care programs, despite adding a very expensive drug benefit that kicks in next year.

Although both likely will be vulnerable to the chopping block, Medicaid seems to be the most likely place budget cutters will start now that it has outgrown Medicare as the largest public provider of health coverage.

That troubles some experts and advocates who see Medicaid as an important safety net in a period when many Americans are out of work or employed in lower-paying jobs.

This contention is supported by a recent report concluding that much of Medicaid spending growth in recent years can be traced to increases in enrollment.

The report, by the Urban Institute's Health Policy Center, was published Jan. 26 as a Web exclusive to the journal Health Affairs.

The authors also said Medicaid spending per recipient grew more slowly than spending on those who get benefits through private insurers.

Those findings raise the question of what savings really can be garnered from the program to justify the government reducing their share of the costs, said Judy Feder, dean of the Public Policy Institute at Georgetown University, Washington, D.C.

In fact, economists have been saying for some time that the system is broken, and it will take more money, not less, to fix it.

"There is a call to invest in infrastructure," Feder said. For example, physicians and other stakeholders have been asking the federal government to contribute more money to the national effort to implement health information technology standards, which could, in the long run, help cut waste out of the system.