In a letter to Senator Whitehouse, CBO gauges the accuracy of its projections of federal health care spending over time. In 2010, CBO overestimated mandatory spending for health care in its projections for the 2010–2020 period.
Senator Whitehouse asked the Congressional Budget Office to gauge the accuracy of its projections of federal health care spending over time. In particular, he would like information about several aspects of the agency’s work: how CBO’s 2010 projections compare with actual spending and the agency’s current baseline; why the 2010 projections overestimated or underestimated actual spending; how health outcomes and spending on health care in the United States compare with those measures in other countries; and how CBO incorporates past errors into its current and future baseline projections and estimates of the costs of legislation. This letter addresses those questions. In brief, these are the agency’s findings:
CBO overestimated mandatory spending for health care in its projections for the 2010–2020 period. Over that period, mandatory outlays for the two broad budget categories covering the major health care programs (mostly Medicare and Medicaid) were 9 percent lower than CBO projected in 2010.
Most of the overestimate for the Medicare and Medicaid programs stemmed from an overestimate of spending per beneficiary, not an overestimate of the number of beneficiaries. Less-than-anticipated spending for prescription drugs in Medicare Part D and for long- term services and supports (LTSS) in Medicaid were two significant sources of error in CBO’s 2010 projections.
The rate of growth in federal mandatory spending on health care per beneficiary has slowed sharply since 2005. For example, Medicare spending per beneficiary grew at an average annual rate of 6.6 percent between 1987 and 2005, 3.1 percent between 2007 and 2012, and 2.2 percent between 2013 and 2019. Several developments may have contributed to that slowdown in spending growth, and the findings of several research papers do not fully account for that trend, in CBO’s assessment.
The United States spends a larger share of its gross domestic product (GDP) on health care than other advanced economies and performs worse on various measures of health outcomes than many of those same countries. In 2019, U.S. health expenditures were 17.6 percent of GDP, nearly 7 percentage points higher than the average of other comparably wealthy countries.
By examining the accuracy of its past projections, CBO identifies opportunities to improve its current and future projections and cost estimates. The agency regularly publishes reports explaining how it has assessed the accuracy of its projections and the changes it has made as a result.