Latest CBO Estimates Show Need to Tackle Rising Healthcare Costs

Whether the deficits separately forecasted in mid-year reviews by the Congressional Budget Office (CBO) and the White House on Tuesday spell a threat to healthcare reform initiatives on Capitol Hill probably will depend on an individual's political slant. Agreement, though, emerged that immediate action was needed now to stem costs related to escalating Medicare and Medicaid costs.

Overall, the news on the economy was grim. The CBO estimated that the federal budget deficit for 2009 will total $1.6 trillion, which, at 11.2% of the gross domestic product (GDP), will be the highest since World War II. Changes being considered to the "provision of health insurance and healthcare services in the United States could either add to or reduce that imbalance over the long term," CBO said.

Spending for Social Security, Medicare, and Medicaid is expected to rise rapidly over the next 10 years, outstripping the growth of GDP, CBO said. By 2019, this spending was projected to total nearly 12% of GDP, which compares with the current 9% of the GDP. Beyond the 10 year budget window, CBO said the nation would face "further significant fiscal challenges posed by rising healthcare costs and the aging of the population."

Meanwhile, White House Office of Management and Budget (OMB) Director Peter Orszag, wrote in his blog that its mid-season review showed a "smaller 2009 deficit but larger out year deficits" than previously predicted: The 2009 deficit is  projected, he said, to be $1.58 trillion--or 11.2% of GDP, which is down from a previously projected $1.84 trillion or 12.9% of GDP.

Orszag added that to avoid making the deficit any worse, the key driver of these long term deficits needs to be addressed: Healthcare costs. "The federal government simply cannot be put on a fiscally sustainable path without slowing the rate of healthcare cost growth in the long run," Orszag said.

He added that is why the president "is insistent that healthcare reform not only be deficit neutral over the next 10 years, but also incorporate changes that will help reduce the deficit thereafter."