Federal Health Care Spending

Federal spending on major health care programs continues to grow faster than the economy—which is helping contribute to the unsustainable long-term fiscal future of the nation.

For instance, Medicare will likely face a funding shortfall within the decade because enrollment in and spending on Medicare (which is on the High Risk List) are both expected to increase as the number and proportion of people over age 65 increases. Similarly, federal Medicaid spending (also on the High Risk List) is expected to total $700 billion by 2030.

Federal Spending on Major Health Care Programs Grows Faster Than GDP  

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Both Medicare and Medicaid could help address future funding shortfalls by improving how they use funds. For example:

• Medicare currently pays a higher rate for certain services, such as evaluation and management office visits, when these visits are performed in a hospital outpatient setting rather than a physician office. Equalizing payments across care settings could reduce Medicare spending by billions of dollars.
• In an effort to reduce improper payments and reduce expenses, Medicare has experimented with requiring prior authorization. This means beneficiaries need approval before they can receive certain services or items (like powered wheelchairs). This approach, which started in 7 states in 2012, reduced spending on these items and services by as much as $1.9 billion. However, some of these programs were slated to end. Some steps have been taken to continue prior authorization in Medicare, such as adding 12 items to its permanent prior authorization program in 2019. Additional steps could identify new opportunities for expanding prior authorization.  

Older Americans Are a Greater Share of the Total Population

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• Many states conduct Medicaid demonstrations, which allow them to test new approaches for delivering services. Medicaid monitors spending under these demonstrations to ensure that the federal government does not pay more for them than it would have paid for the state's traditional Medicaid program. But over the last decade, Medicaid has spent increasing amounts on these demonstrations and has been inconsistent in how it monitors these funds.
• States must screen and enroll health care providers in Medicaid according to federal and state rules. These rules are designed to exclude providers who don’t meet minimum standards, which can help prevent fraud, waste, and abuse. Congress established new federal rules in 2010 and 2016, but some states haven’t implemented all of them. Medicaid should expand its oversight of state compliance with these new rules.  
• Medicaid paid $171 billion—about half its total 2017 federal expenditures—to managed care organizations. Medicaid estimated that about 0.3% of that amount were improper payments. However, these estimates may not account for key risks, such as overpayments and unallowable costs.