Some Context for Thinking About Deficit Reduction: Social Security and Major Health Care Programs

September 28, 2011

As policymakers consider the composition of policy changes to be used to reduce future budget deficits, it is useful to consider both historical experience and projections for the future for significant components of the budget. Today, I’ll discuss Social Security and the government’s major health care programs.

Spending on Social Security and the major health care programs—Medicare, Medicaid, the Children’s Health Insurance Program, and insurance subsidies to be provided through exchanges in coming years—will be 12.2 percent of GDP in 2021, according to CBO’s projections based on current law. Such spending equals 10.4 percent of GDP in 2011 and represented an average of 7.2 percent of GDP during the past 40 years. The marked increases in such spending experienced during the past 40 years and projected for the next 10 years reflect the aging of the population, rising costs for health care, and changes in federal programs.

Spending for Social Security, which totaled 3.3 percent of GDP in 1971, will equal 4.8 percent in 2011 and is projected to continue growing over the next 10 years, reaching 5.4 percent in 2021 (see the figure below). Medicare spending (excluding offsetting receipts) is projected to grow even faster, relative to the overall economy, from 0.7 percent of GDP in 1971 to 3.7 percent in 2011 and 4.1 percent in 2021. CBO projects that spending for other major health care programs will rise from 1.7 percent of GDP in 2012 to 2.8 percent in 2021; by comparison, Medicaid spending represented 0.3 percent of GDP in 1971.

Spending for Social Security, Medicare, and Other Major Health Care Programs (Percent of GDP)
Spending for Social Security, Medicare, and Other Major Health Care Programs (Percent of GDP)

Most of the spending for Social Security and the major health care programs goes to benefits for people over age 65, with smaller shares for blind and disabled people and for nonelderly able-bodied people. Specifically, CBO estimates that more than four-fifths of Social Security spending in 2021 will go to benefits for retired workers and their dependents and survivors, with the remaining less than one-fifth going to benefits for disabled workers and their spouses and children. In addition, even with the significant expansion of federal support for health care for lower-income people enacted in last year’s legislation, CBO projects that about half of spending for the major health care programs in 2021 will go to people over age 65, with another quarter going to the blind and disabled, and the remaining quarter going to able-bodied nonelderly people.