The Friday before Inauguration Day, the Congressional Budget Office (CBO) illustrated the fiscal challenge facing President Trump and the new Republican Congress. In a short version of its annual Budget and Economic Outlook, CBO quantified the whopping $21.8 trillion in budget deficits the federal government faces in the coming decade.
While the updated numbers only marginally constitute news — CBO has warned for years about our dire financial future, only for lawmakers to keep spending — one particular nugget illustrates the problem. The budget gnomes significantly increased their spending projections for Medicaid, as but one example of how entitlement programs continue to cannibalize the federal budget.
Double-Digit Growth in Medicaid
Appendix A, which contains all the changes — legislative, economic, and technical — to the fiscal baseline since CBO’s last update last June, contains a sizable change in the last category. Among the technical “tweaks,” the budget office increased projected federal spending on Medicaid over the coming decade by $817 billion, or 12 percent. Most of this projected increase has to do in one way or another with administrative actions by the Biden administration.
Chief among the factors driving the spending explosion were continued increases in Medicaid enrollment, even after states were finally permitted to remove beneficiaries from the rolls following the pandemic (something they could not do during the Covid “emergency”). CBO increased projected enrollment for calendar year 2025 from 79 million last June to 84 million. It also noted that the enrollees remaining on Medicaid have generally worse health than those who were removed from the rolls, resulting in “significantly higher than expected” costs per enrollee last year — which CBO believes will force state Medicaid programs to raise their rates to the managed care plans that provide coverage.
Other factors also drove the growth in the Medicaid spending estimates, including projected increases in enrollment among individuals with disabilities — a result of Biden’s rules expanding eligibility for the Supplemental Security Income program — and rising drug costs, attributable in part to Biden’s recent proposal to require Medicaid programs to cover GLP-1 drugs to control obesity. CBO assumed a “modest increase in expected coverage expansions” under Obamacare, meaning more red states will decide to cover able-bodied adults (which they should not do).
Finally, the budget office assumed that another Biden regulation will raise Medicaid spending. Specifically, a rule on state-directed payments will encourage states to raise reimbursement levels to draw additional federal matching funds. In a recent paper for the Paragon Health Institute, I suggested that Congress or the new administration should repeal many of these requirements, which provide examples of the executive branch spending money without congressional approval.
Hellbound and Down 
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