Director’s Statement on CBO’s Updated 10-Year Baseline Budget Projections

WASHINGTON, May 3 -- The Congressional Budget Office issued the following information:

By Keith Hall, Director

Today, the Congressional Budget Office released two reports: Updated Budget Projections: 2019 to 2029 (https://www.cbo.gov/publication/55151) and Federal Subsidies for Health Insurance Coverage for People Under Age 65: 2019 to 2029 (https://www.cbo.gov/publication/55085).

CBO's Latest Budget Projections

Overall, our baseline budget projections, which reflect the assumption that current laws generally remain in place, have changed little since January, when we released The Budget and Economic Outlook: 2019 to 2029 (https://www.cbo.gov/publication/54918). In our projections, federal debt continues to rise from its already high level because of persistently large budget deficits.

In the projections, the federal budget deficit reaches $896 billion in 2019 and exceeds $1 trillion each year beginning in 2022--reflecting large primary deficits (deficits excluding net interest payments) and rising interest rates. Cumulative deficits from the end of 2018 through 2029 are projected to equal $12.7 trillion.

* The size of the projected deficit for 2019 is nearly unchanged from our projection in January. The cumulative deficit over the 2020-2029 period is projected to be about 2 percent smaller, mostly because we have reduced our estimates of mandatory spending and net interest payments. Our projections are based on the same economic forecast that we developed for the January projections, and legislation enacted since then has had only a modest effect. In addition, we have not fully updated our revenue projections.

* Between 2019 and 2029, federal debt held by the public is projected to grow from an amount equal to 78 percent of gross domestic product (GDP) to an amount equal to 92 percent of GDP. That would be the largest percentage since 1947 and more than twice the 50-year average.

* Under an alternative fiscal scenario in which some major tax and spending policies were kept in place (rather than changing as provided in current law), far larger deficits and greater debt would result than are shown in our baseline projections.

* For federal debt as a percentage of GDP to be put on a downward path, primary deficits would need to be significantly smaller than those projected under current law. They would need to be reduced further still if certain tax increases and discretionary spending cuts did not occur as scheduled under current law.

* A projected increase in interest rates over the coming decade would boost the interest costs on federal debt and contribute significantly to rising debt as a share of GDP. But even if the average interest rate on federal debt remained at its relatively low 2019 level (instead of rising as projected), the primary deficits projected in our baseline would push up debt as a share of GDP over the next decade. If the average interest rate did not change, primary deficits would have to average less than 1.0 percent of GDP--significantly less than the 1.7 percent that we project they would average under current law--to keep debt from rising as a share of GDP.

As part of our process for creating the baseline projections, we also examined the effects of a proposed rule on "safe harbors" for pharmaceutical rebates. We expect that the rule would result in pharmacies' charging beneficiaries prices for prescription drugs that reflect the discounts that pharmacy benefit managers negotiate with manufacturers. Implementing the rule as proposed would increase federal spending, we estimate.

CBO's Projections of Insurance Coverage and Federal Subsidies

In our report about federal subsidies for health insurance, we provide estimates of health insurance coverage and the federal costs associated with each kind of subsidy for noninstitutionalized civilians under age 65. This year, we have summarized our findings in a new way, using the charts in the report to illustrate some key messages.

In preparing the current projections, CBO and the staff of the Joint Committee on Taxation (JCT) used a new version of our health insurance simulation model, HISIM2. It incorporates new sources of survey and administrative data, better accounts for employers' and consumers' selection among different types of insurance plans, and can more easily simulate the effects of new insurance products.

Our key projections, which are similar to those made last year, are these:

* In an average month for each year during the 2019-2029 period, between 240 million and 242 million people under age 65 are projected to have health insurance, mostly from employment-based plans. But the number of people without health insurance is projected to rise from 30 million in 2019 to 35 million in 2029.

* Net federal subsidies for insured people under age 65 will total $737 billion in 2019, according to estimates by CBO and JCT. That amount is projected to reach $1.3 trillion in 2029.

* In each year during the period, Medicaid and the Children's Health Insurance Program account for between 40 percent and 45 percent of the federal subsidies, as do subsidies in the form of tax benefits for work-related insurance. Medicare accounts for about 10 percent, and subsidies for coverage obtained through the marketplaces established by the Affordable Care Act or through the Basic Health Program account for less than 10 percent.

* Since our most recent report comparable to this one was published in May 2018, the projection of the number of people with employment-based coverage has risen by 3 million, on average, for the 2019-2028 period spanned by both reports. The projection of the average number of uninsured people has fallen by 1 million over that period. Projected net federal subsidies for health insurance from 2019 to 2028 have risen by 2 percent.

* Compared with actual amounts of spending in 2018, our projections for that year made in September 2017 were generally close--with the largest error being an overestimate of $15 billion (or 5 percent) for Medicaid spending.

In the projections, the repeal of the penalty for not having health insurance starting in 2019 results in less insurance coverage. In total, the effects of that repeal are similar to those that we incorporated in the baseline a year ago. By 2021, in the current baseline, 7 million more people are uninsured than would have been if the individual mandate penalty had not been repealed; subsequently, that number remains roughly constant through the end of the projection period in 2029. Those effects of the repeal are partially offset by increases in coverage for other reasons. Most important, in the agencies' projections, additional states expand eligibility for Medicaid under the Affordable Care Act, and more people enroll in certain types of health insurance--specifically, those that are exempt from regulations governing the nongroup market but that nonetheless provide major medical coverage.