Letter to the Honorable Tom Price Regarding Spending for Means-Tested Programs in CBO’s Baseline, 2016–2026

In The Budget and Economic Outlook: 2016 to 2026, which CBO published in January 2016, which CBO published in January 2016, mandatory outlays for means-tested programs are projected to grow over the next decade at an average annual rate of 4.3 percent, compared with an average rate of 5.5 percent for non–means-tested programs, such as Social Security, most of Medicare, and civilian and military retirement programs. Mandatory outlays in 2016 will be boosted by an estimated shift of $39 billion in payments from fiscal year 2017 to 2016 (because October 1, 2016, falls on a weekend). If not for that shift, mandatory outlays for means-tested programs would grow over the next decade at an average annual rate of 4.4 percent, compared with 5.7 percent for non–means-tested programs. Compared with growth from 2007 through 2016, projected growth from 2017 to 2026 (adjusted for shifts in the timing of payments) is much lower for means-tested programs (which will have grown at an average rate of 7.2 percent from 2007 to 2016, by CBO’s estimate). In contrast, projected growth for non–means-tested programs (which will have grown at an average rate of 4.8 percent from 2007 to 2016, CBO estimates) is almost one percentage point higher per year, in part because of the aging of the population.

Overall, the growth rates projected for total mandatory spending over the coming decade are slower than those of the past 10 years—by about one-half of a percentage point per year, on average. However, most of that difference results from the shift of some payments from 2017 to 2016. If not for that shift, the average growth rate projected for total mandatory spending over the coming decade would be 5.4 percent, equal to the rate recorded for the past 10 years.

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 also exert an influence. As a result, important aspects of the programs in the future may differ significantly from experience over the past decade, 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 several programs—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, both because of enrollment growth and as a result of a temporary increase in the federal matching rate. After dropping off a bit subsequently, that spending 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 32 percent from 2013 to 2015 and is projected to rise by 9 percent in 2016. Under current law, the rate of growth in Medicaid spending would decline through 2019, CBO projects, after which it would largely level off at a rate of roughly 5 percent per year through the end of the projection period.
• Under current law, spending authority for CHIP will expire at the end of fiscal year 2017. Consistent with statutory guidelines, CBO assumes in its baseline spending projections that annual funding for the program after 2017 will continue at $5.7 billion. As a result, in CBO’s baseline, spending for CHIP is projected to drop to $11 billion in 2018 and to about $6 billion in subsequent years; it had grown from $5 billion to $13 billion from 2006 to 2016.
• Payments of subsidies for health insurance purchased through an exchange began in January 2014 and totaled $27 billion in fiscal year 2015. They are projected to continue to grow rapidly between 2016 and 2018, largely as a result of significant growth in enrollment. CBO and the staff of the Joint Committee on Taxation project annual growth averaging about 4 percent between 2019 and 2026.
• 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) temporarily raised the maximum benefit under that program. The combination of higher enrollment and an increased benefit caused outlays to peak at $83 billion in 2013. Spending has fallen since then because subsequent legislation eliminated the increase in the maximum benefit (as of October 31, 2013) and because the program’s caseload (which peaked in 2014) has declined. CBO expects that enrollment will continue to 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 8 percent per year over the 2007–2016 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. Provisions expanding the refundability of those credits originally enacted in ARRA (and subsequently extended) recently were made permanent. As a result, those outlays are projected to continue to grow slowly—by an average of about 2 percent per year—over the projection period.

Finally, because of the unusual budgetary treatment of the Pell grant program—which has mandatory and discretionary components—the growth rates for the mandatory portions of that program give incomplete information. The bulk of the funding is provided annually in appropriation acts and thus is discretionary. In recent years, spending for the program also has included two mandatory components that 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 2016, adjusted for inflation. (That projection of discretionary spending 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 account for such factors as award amounts, eligibility, and enrollment.