CBO: COVID-19’s impact on the federal budget

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Earlier this month, the Congressional Budget Office (CBO) gave an update to its federal budget projections between 2020 and 2030. As expected, things look grim for 2020.

CBO projects a federal budget deficit of $3.3 trillion in 2020, more than triple the shortfall recorded in 2019. That increase is mostly the result of the economic disruption caused by the 2020 coronavirus pandemic and the enactment of legislation in response. At 16.0 percent of gross domestic product (GDP), the deficit in 2020 would be the largest since 1945.

The deficit in 2021 is projected to be 8.6 percent of GDP. Between 1946 and 2019, the deficit as a share of GDP has been larger than that only twice

As we know, the federal government spent a lot of emergency funds to help stabilize the health care system in the wake of the COVID-19 pandemic. Where did the $225 billion lawmakers appropriated for the HHS Pulic Health and Soical Services Emergency Fund go?

CBO projects that the funding will result in $135 billion in outlays in 2020 and $89 billion in outlays over the 2021–2025 period. Most of the funding, $175 billion, was dedicated to reimbursing health care providers (such as hospitals) for expenses related to health care or lost revenues as a result of the coronavirus pandemic. The remaining amount, including $16 billion for the Strategic National Stockpile, can be used to support the development and purchase of vaccines, therapeutic treatments and drugs, and medical supplies.

As the economy declined, a larger share of individuals switched to government-funded health insurance. See how CBO projects federal health insurance spending to be impacted by the pandemic.

Medicare. Outlays for Medicare (net of offsetting receipts) will rise by 12 percent in 2020, from $644 billion in 2019 to $721 billion, CBO projects. That increase results in part from payments made to providers in 2020 in advance of expected health care claims. CBO expects that those payments will be recouped from providers in 2020 and 2021…

Medicaid: Outlays for the program will total $466 billion this year [2020]…an increase of $57 billion (or 14 percent) relative to spending in 2019. The deterioration in the economy has
caused enrollment in the program to rise. In addition, legislation has raised the portion of costs the federal government must cover and required that states maintain coverage for all Medicaid enrollees during the public health emergency regardless of any changes in their
income or circumstances that would otherwise have caused them to become ineligible for the program.

Over the next decade, expect Medicare finding to rise dramatically as the baby boomers retire whereas Medicaid spending–assuming know change in legislation–will be fairly stable as a share of the economy.

Outlays for Medicare, which equal 3.2 percent of GDP in 2021, rise to 4.3 percent of GDP in 2030.

Federal outlays for Medicaid remain relatively stable as a percentage of GDP over the coming decade, averaging about 2 percent each year.

Outlays for subsidies for health insurance purchased through the [ACA] marketplaces and related spending are projected to average 0.2 percent of GDP per year through 2030.

Source:

• Congressional Budget Office. An Update to the Budget Outlook: 2020 to 2030. September 2020.

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