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.
• Diagnostic coding practices have contributed to Medicare Advantage plans receiving higher payments for beneficiaries. Improvements to the accuracy of the payment adjustments for these plans, such as incorporating more recent data and fully accounting for historical coding differences, would better ensure accurate payments and reduce Medicare spending by billions of dollars.

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.  
• States' increased reliance on taxes on health care providers and local government funds decreases their share of net Medicaid payments (total state and federal payments) and effectively increases the federal share of net Medicaid payments. To effectively oversee the financing of the Medicaid program, CMS should collect and document complete and consistent information about the sources of funding for the nonfederal share of payments to providers.