From msnbc.com's Tom Curry: The day after the Congressional Budget Office released its new estimate of a $1.5 trillion budget deficit for this fiscal year, CBO chief Douglas Elmendorf told the Senate Budget Committee that health care is the biggest driver of the budget problem.
Responding to a question from Sen. Rob Portman, R-Ohio, who asked him to identify the single largest fiscal challenge facing the United States, Elmendorf said, "the part of the spending that is growing very rapidly, and much faster than GDP, is spending on the government's large health care programs, both because of the aging of the population … and because of rising health spending."
He added, "The crucial underlying factor here … is the rising number of older Americans, relative to working Americans, and the rising cost of health care, relative to other things in the economy."
This should come as no surprise, Elmendorf said. "Those fundamental forces have been foreseen for decades and, I think, are inexorable under current policies."
The CBO's budget estimate released Wednesday projected that over the next several years, Medicare spending will grow at an average annual rate of nearly 7 percent, while Medicaid will grow at an average annual rate of 9 percent – even while the nation's economy itself is growing at a rate of less than 3 percent a year.
(Medicaid is the government's insurance program for poor people of all ages, but the elderly and disabled account for 70 percent of its outlays.)
He also said that a sudden onset of investor skittishness about the federal government's creditworthiness could cause an interest rate shock.
"The swings in sentiment that drive fiscal crises are not usually telegraphed very well ahead of time. They often occur very suddenly," Elmendorf told Portman.
"It's very difficult to predict what will happen if there's a sudden shift of sentiment against buying U.S. Treasury debt."
Elmendorf stuck to the CBO forecast that the health care law Congress passed last year will reduce future deficits. He repeated CBO's previous estimate said repeal of the law would add $230 billion to future deficits over the next several years.
At the hearing Elmendorf also gave a word of praise to the soon-to-be-ending $814 stimulus program, calling it "an important boost to output and employment."
The stimulus has gotten little attention in President Obama's State of the Union speech or in the budget debate in recent days.
In response to Sen. Bill Nelson, D- Fla., Elmendorf said "The waning of the effects of the Recovery Act … is one of the reasons that the economy isn't growing more rapidly over the next few years in our projection."
Nelson said people don't appreciate the stimulus because most of the money wasn't in the form of bridges and other visible infrastructure, but in "a massive infusion of money" to state governments "that people don't ordinarily see -- such as Medicaid spending as well as education."
But Elmendorf then brought the conversation back to the topic of the moment: the debt -- pointing out to Nelson that the stimulus had the unhealthy effect of adding to the debt.
"The large accumulation of debt to pay for the Recovery Act and the automatic stabilizers (such as unemployment insurance)… in the past few years has pushed debt to GDP up in a way that creates damage and risks."