GAO: Budget Control Act Did Not Solve Long-Term Healthcare Costs

Although the Budget Control Act of 2011 — the debt ceiling legislation from last summer — improves the fiscal outlook of the country over the next decade, it did not eliminate the "structural gap" between revenue and spending that is driven by rising healthcare costs and the aging population, according to a spring 2012 report from the Government Accountability Office (pdf).

The GAO report on long-term fiscal simulations is published twice every year, and updated simulations occur as new data from the Congressional Budget Office and other agencies become available. The spring report incorporates CBO's January 2012 budget and economic projections, which stated that Medicare and Medicaid expenditures were still expected to double by 2020.


In 2010, about 47 cents of every federal dollar spent went to Medicare, Medicaid, Social Security and interest on the federal debt. Under revised baseline simulations from the GAO, spending on those four areas would spike to about 70 cents of every dollar spent by 2040. The GAO said this would leave little room for all other spending measures, such as national defense, infrastructure and smaller entitlement programs such as student loans.

The report concluded that legislators need to balance the near-term and long-term considerations when making fiscal policy. A combination of revenue increases and non-interest spending reductions needs to be implemented to keep public debt at bay.

"Action taken to address the fiscal outlook needs to be balanced with the importance of sustaining economic growth in the near term," GAO analysts wrote in the report. "If policy changes designed to correct the federal government's fiscal path are too sharp, they could stifle the pace of the recovery in the near term. Conversely, changes in policy designed to encourage near-term recovery could worsen the long-term outlook and increase the size of necessary changes in the long run."

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