Letter to the Honorable Tom Price Regarding Spending for Means-Tested Programs

Federal spending for each of the government’s major mandatory spending programs and tax credits that are primarily means-tested (that is, spending programs and tax credits that provide cash payments or other forms of assistance to people with relatively low income or few assets). Table 1 shows the Congressional Budget Office’s January 2015 baseline projections for the 2015–2025 period; Table 2 shows historical spending data from 2005 through 2014, along with CBO’s estimates for 2015.

The tables also include a line showing total spending for mandatory programs that are primarily not means-tested. Some of those programs have means-tested components (for example, student loans), but the tables do not show separate entries for such programs. They also do not include means-tested programs that are discretionary (for example, the Section 8 housing assistance programs and the Low Income Home Energy Assistance Program). However, the tables show discretionary spending for the Pell Grant program as a memorandum item because that program has both discretionary and mandatory components and the amount of the mandatory Pell Grant component depends in part on the annual amount of discretionary funding.

In the projections that CBO published in The Budget and Economic Outlook: 2015 to 2025 in January 2015, mandatory outlays for means-tested programs are projected to grow over the next decade at an average annual rate of 4.6 percent, compared with an average rate of 5.5 percent for non-means-tested programs, which include, for example, Social Security, most of Medicare, and civilian and military retirement programs (see Table 1).

Overall, the growth rates projected for total mandatory spending over the coming decade are slower than those experienced in the past 10 years—by a little less than one-half percentage point per year, on average. Projected growth from 2016 to 2025 is slightly higher for non-means-tested programs (which will have grown at an average rate of 5.4 percent from 2006 to 2015, CBO estimates), but much lower for means-tested programs (which will have grown at an average rate of 6.8 percent from 2006 to 2015, by CBO’s estimate; see Table 2).

A number of programs shown in Tables 1 and 2 have been or are scheduled to be significantly affected by changes in law, the most recent recession, and the continuing recovery. As a result, important aspects of the programs in the future may differ significantly from historical experience, and those differences may be the source of some of the variation between the growth rates in the past 10 years and those in the coming decade. For example, spending for Medicaid, the Children’s Health Insurance Program (CHIP), subsidies for health insurance purchased through an exchange, the Supplemental Nutrition Assistance Program (SNAP), and the refundable portions of the earned income and child tax credits has been or will be significantly affected by program changes that unfold over time:

• Medicaid spending shot up by 35 percent from 2008 to 2010, during the most recent recession. After dropping off a bit in the following few years, it has been boosted by the expansion of Medicaid coverage under the Affordable Care Act. As that expansion has been phased in, spending for the program increased by 14 percent last year and is projected to rise by 11 percent in 2015. Under current law, the rate of growth in Medicaid spending will decline through 2018, CBO projects, after which it will level off at a rate of roughly 5.5 percent per year through the end of the projection period.
• Spending authority for the CHIP program expires at the end of fiscal year 2015. Consistent with statutory guidelines, CBO assumes in its baseline spending projections that annual funding for the program after 2015 will continue at $5.7 billion. As a result, in CBO’s baseline, spending for CHIP is projected to drop from $11 billion in 2016 to about $6 billion in subsequent years; it had grown from $5 billion to $10 billion from 2005 to 2015.
• Payments of subsidies for health insurance purchased through an exchange began in January 2014 and are projected to grow rapidly between 2015 and 2018, largely as a result of significant growth in enrollment. CBO and the staff of the Joint Committee on Taxation project annual growth will average about 4 percent between 2019 and 2025.
• SNAP spending increased markedly during the most recent recession—roughly doubling between 2008 and 2011—as more people became eligible for those benefits. In addition, the American Recovery and Reinvestment Act of 2009 (ARRA) raised the maximum benefit under that program; subsequent legislation eliminated that increase as of October 31, 2013. The program’s caseload peaked in 2014, and CBO expects that it will fall in each year of the projection period as the economy continues to improve. As a result, spending for SNAP is projected to decline slightly over the next several years, after growing by an average of 9 percent per year over the 2006–2015 period.
• Outlays for the earned income and child tax credits rose by almost 40 percent from 2007 to 2008 and have grown slowly since then. They are expected to dip after 2018 because provisions expanding the refundability of those credits (which were originally enacted in ARRA and were subsequently extended) are scheduled to expire on December 31, 2017. In 2025, those outlays are projected to be about what they were in 2014.

Finally, because of the unique budgetary treatment of the Pell Grant program—which has both mandatory and discretionary components—the growth rates for the mandatory portion of that program give incomplete information. The bulk of the funding for Pell grants is provided annually in appropriation acts and thus is discretionary. In recent years, spending for Pell grants also has included two mandatory components, which have allowed the discretionary budget authority provided by the regular appropriation acts to remain well below the full cost of the program.

In keeping with procedures that govern CBO’s baseline, the projection for the discretionary portion of the Pell Grant program is based on the budget authority appropriated for fiscal year 2015, adjusted for inflation. (Discretionary spending for the program is shown as a memorandum item in both tables.) Thus, the baseline projection for both discretionary and mandatory spending for Pell grants does not represent an estimate of the expected future costs of the program; such a projection also would take into account such factors as changes in eligibility and enrollment.