Entitlement programs put growing pressure on the budget

A Congressional Budget Office report projecting the explosive growth of Medicare, Medicaid and Social Security from 2009 to 2080 is the latest wake-up call for entitlement reform, budget experts said.

"The main thing the report does is once again focus people on how crucial healthcare reform is," said Jim Horney, who served as deputy Democratic staff director on the Senate Budget Committee from 2001-04 and is director of federal fiscal policy at the Center on Budget and Policy Priorities.

The report, released last week, projects that if laws do not change, federal spending on Medicare and Medicaid combined will grow from roughly 5 percent of gross domestic product today to almost 10 percent by 2035, and to more than 17 percent by 2080.

"That projection means that in 2080, without changes in policy, the federal government would be spending almost as much, as a share of the economy, on just its two major healthcare programs as it has spent on all of its programs and services in recent years," the report said.

The report comes as President Obama and congressional Democrats are pushing to overhaul the healthcare system in order to cover more citizens and ultimately reduce surging healthcare costs and their effect on the long-term deficit.

Social Security spending will increase from less than 5 percent of GDP today to about 6 percent in 2035 and then roughly stabilize at that level through 2080, the report estimated. "In the long run, the path we are on is unsustainable," Horney said.

Under the assumptions used for CBO's long-term projections, government spending on activities other than Medicare, Medicaid, Social Security and interest on the federal debt -- such as national defense and a wide variety of domestic programs -- is projected to decline or stay roughly stable as a share of GDP in future decades.

"If we don't bring the long-term deficits under control ultimately all the programs in the federal government will be squeezed, certainly appropriations will be among them, particularly since you've got to consider the appropriations bills every year, so you have easy targets out there," Horney said.

Brian Riedl, a senior policy analyst on budget issues at the Heritage Foundation, said: "If lawmakers do nothing the U.S. economy would eventually collapse under the weight of the debt from Social Security, Medicare, and Medicaid. And every year we wait the cost goes up by trillions of dollars."

He added that caps on all federal spending -- including annual appropriations -- would go a long way toward reducing the deficit.

However, capping annual spending is easier said than done, according to Scott Lilly, a former Democratic clerk and House Appropriations staff director who is a senior fellow at the Center for American Progress.

Lilly said the typical target for cuts has been domestic discretionary spending, which totals about 16 percent of the overall budget. "It is hard to solve a problem of great magnitude if you are only looking at 16 percent of the total," he said.

Of the 16 percent, about half is made up of items which if cut would result in less revenue coming into U.S. coffers, such as Internal Revenue Service collection, Lilly said. The other half is made up of "investments we need to make in the future" such as infrastructure and education.