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CBO’s Budget Forecast and the Silver Tsunami

This week, the Congressional Budget Office (CBO) released a projection that shows Medicare enrollment will grow by more than 30 percent in the next decade alone, and the number of seniors will steadily grow from 55 million today to more than 80 million by 2036.  This is often referred to as the Silver Tsunami.  The challenge of responding to the growth of Medicare is going to drive policy in health care for the next decade.

Regardless of who is President or what party controls Congress, Medicare’s demographic surge will force policy makers to find ways to reduce health care spending to save other spending priorities from being crowded out.  CBO projects the national debt to increase by $9.4 trillion to $30 trillion by 2026.  Spending on federal health programs now exceeds spending on Social Security.  With interest on the national debt a growing and untouchable line in the budget, the next Administration and Congress will need to reduce health care costs if they want to fund priorities in defense, transportation, education and other discretionary spending.

Policy makers have developed potential solutions that are vague and with unclear expectations of success.  The jury is still out on whether Accountable Care Organizations or Alternative Payment Models will be able to slow the growth of health care costs.  Other policy solutions are more certain in their impact but bring significant political dissent.  For example, cutting payments to all health care providers by 10% would improve the fiscal outlook considerably, but would result in tremendous pushback from those providers impacted by such blunt cuts.

Payments in health care are going to be under significant downward pressure.  It is hard to imagine any sector of health care being sacrosanct.  Furthermore, there is certain to be a battle to protect providers that may be considered both inefficient and critical (for example, rural providers where scale remains difficult).  The challenge for the health care sector is to fight payment reductions generally while making sure any cuts incurred are rational and survivable.

For health care policy in Washington, the Silver Tsunami is Scary Monster #1.

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