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Medicare and Private Health Insurance Spending Growth Projected to Slow in the Near Term

Washington, D.C.—National health spending growth is expected to significantly outpace economic growth between 2002 and 2012, according to new federal health spending projections released today by the journal Health Affairs. In a Web-exclusive study available at www.healthaffairs.org, federal researchers predict that national health expenditures will grow at an average annual rate of 7.3 percent, reaching $3.1 trillion by 2012. The health share of Gross Domestic Product (GDP) is projected to increase from 14.1 percent in 2001 to 17.7 percent in 2012.

Despite these long-term projected trends, the authors forecast a slowdown in national health spending growth in 2002 and 2003 coming on the heels of five consecutive years of accelerated spending growth. After increasing 8.7 percent in 2001, national health expenditure growth is projected to be 8.6 percent in 2002 and 7.3 percent in 2003. The primary reasons are slower projected Medicare and private health insurance spending growth.

"Private health insurance premiums have been rising at rapid rates, budget shortfalls exist at both state and federal levels, a softer labor market has reduced the number of people with private insurance and increased Medicaid costs, and provider costs are continuing to rise," said Stephen Heffler, deputy director of the National Health Statistics Group in the Office of the Actuary at the Centers for Medicare and Medicaid Services. "We project that these pressures will work to slow health care spending growth over the next decade."

The authors expect continued rapid growth in Medicaid spending and hospital spending is expected to remain the most important driver of health spending growth in 2002, accounting for 27.1 percent of the overall increase in health spending that year. Some highlights of the projection include:

Private-sector spending. After increasing 7.9 percent in 2001, private personal health care spending growth is projected to fall to 7.4 percent in 2002 and eventually decline to 6.1 percent in 2012. The authors attribute much of this deceleration to slowing real per capita income growth, an increase in the uninsured population, and increased consumer cost-sharing.

Private health insurance enrollment. Private health insurance enrollment decreased sharply in 2001, largely due to weaker-than-expected employment growth and double-digit premium increases. The authors project that in the near-term, enrollment will continue to decrease, leading either to increased numbers of uninsured or higher Medicaid enrollment.

Medicare spending. The authors project that Medicare spending growth will slow in 2002 (5.2 percent) and 2003 (3.0 percent) primarily due to the expiration of many of the provisions set forth in Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 1999 and the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000, as well as reduced reimbursements to physicians. In the later part of the forecast, Medicare is projected to return to higher levels of growth, reaching 7.4 percent in 2012.

Medicaid spending. Medicaid spending grew 10.8 percent in 2001 and is projected to rise to 12.1 percent in 2002. High Medicaid spending growth is largely due to an 8.5 percent increase in enrollment in 2001 and a 5.8 percent projected increase in 2002 caused by the slowdown in economic growth. Medicaid is expected to grow in excess of 8 percent per year over the entire forecast period.

Hospital spending. Medicare hospital spending grew 7.2 percent in 2001 and is projected to decelerate to 5.7 percent in 2002 and 2.9 percent in 2003. In contrast, Medicaid hospital spending increased 10.2 percent in 2001 and is projected to grow 11.9 percent in 2002. Private hospital spending growth is expected to slow from 7.7 percent in 2003 to 5 percent in 2012.

Prescription drugs. Projections indicate a continued deceleration in prescription drug spending growth from 15.7 percent in 2001 to 14.3 percent in 2002 to 9.2 percent by 2012. However, prescription drug expenditures are expected to remain the fastest growing sector, reaching 14.5 percent of total health expenditures by 2012, compared to just 9.9 percent in 2001.

Health Affairs, published by Project HOPE, is a bimonthly multidisciplinary journal devoted to publishing the leading edge in health policy thought and research. "Health Spending Projections for 2002-2012," a Web-exclusive study, is available on the journal's Web site.


©2003 Project HOPE–The People-to-People Health Foundation, Inc.