Looking at Spending on Means-Tested Programs

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We often talk in broad strokes about how “mandatory spending” — spending that happens automatically based on eligibility criteria set into law by Congress — is growing as a share of the budget and as a share of GDP in the future.

However, a new Congressional Budget Office (CBO) report reminds us that there are important differences within the mandatory spending category. Some are social safety net programs that provide benefits to individuals and families based on need. They use a process called “means-testing” to determine levels of “cash payments or other forms of assistance to people with relatively low income or few assets.”

These means-tested programs, which make up only about a quarter of all mandatory spending, are also projected to grow more slowly than other mandatory spending programs which provide more universal benefits or benefits based on demographics, or criteria other than need.

The largest means-tested mandatory programs are Medicaid, the earned income and child tax credits (which are refundable), the Supplemental Nutrition Assistance Program (SNAP) and the Supplemental Security Income program.

The biggest mandatory programs that are not means-tested are Social Security, the federal civilian and military retirement programs, and most of Medicare.

Under current law and correcting for certain payment-timing issues, CBO projects that outlays for means-tested mandatory programs would grow at an average rate of 4.0 percent a year for the coming decade. The comparable figure for non-means-tested mandatory programs is 5.8 percent.

Compared to the last 10 years, the projected growth rate for the means-tested programs is significantly lower, and the projected growth rate for the other mandatory programs is considerably higher.

Even within the means-tested category there is an interesting difference between programs. CBO separates out the health care programs in the category, like Medicaid and the Children’s Health Insurance Program, and shows a projected increase in spending on those programs of 5.3 percent for the coming decade. The non-health care means-testing programs are only projected to grow by about 1.3 percent annually over the decade.

This further reinforces how dramatically health care cost growth impacts all areas of the federal budget and how no specific way of organizing health insurance (whether Medicaid, Medicare, or the private sector) is immune to that cost growth.

It also is worth mentioning that the slow growth in non-health care, means-tested programs is predicated on continuing economic growth for the next decade. As CBO pointed out, during the decade after the 2009-2010 recession, these programs grew 1.2 percent more quickly than they are currently projected for the next decade. Were we to face another recession it is likely these programs would grow faster than currently projected.

This is a feature of these programs, not a bug, since the added spending on safety net programs during a recession helps prevent a deeper recession. But, it points to one of the reasons why it is important to take fiscal advantage of good economic times and reduce deficits. Unfortunately we are currently doing the opposite.

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