Although Slowing, Health Care Spending Growth Projected
To Nearly Double In The Next Decade, Health Affairs Article Says

Government Forecasters Say Nation’s Health Care Bill Will Grow Faster Than The Economy,
Consume Nearly One-Fifth Of Economic Output

BETHESDA, MD.—Despite a projected slowdown in its rate of growth, U.S. health care spending will reach nearly $3.4 trillion in 2013, nearly doubling in the next decade and consuming close to one-fifth of the nation’s economic output, according to new federal government projections published today on the Health Affairs Web site.

In an annual forecast of health care spending trends, Stephen Heffler and colleagues from the actuary’s office at the Centers for Medicare and Medicaid Services write that while it is projected to slow, health care spending is still expected to grow faster than the economy over the next 10 years.

Health care spending growth appears to have peaked at 9.3 percent in 2002, however, and is forecast to fall to 7.2 percent in 2004.
Findings from this study will be released at a Health Affairs/Kaiser Family Foundation forum on the outlook for health spending on Wednesday, Feb. 11. The forum is the first in a partnership between the journal Health Affairs and the Kaiser Family Foundation to highlight the journal's Web exclusives, online publications designed to speed the dissemination of critical data and research to the health policy community.

At an estimated $1.8 trillion in 2004, or 15.5 percent of the nation’s gross domestic product, health care spending will climb to $3.4 trillion in 2013, or 18.4 percent of GDP.

“This scenario would demonstrate that society continues to demand and is willing to pay for medical care that consumes more of its income,” Heffler says.

However, continued rapid growth in health spending and rising budget deficits may spur thoughts on cost containment.

“Although it is unclear what direction new efforts to restrain health costs might take, historical behavior suggests that a continued escalation in health spending of the magnitude of recent experience will likely spur efforts to contain this growth,” Heffler says. “The form that these efforts take can be expected to shape the nature of health care financing and delivery over the coming decade.”

Individual sectors reflected the overall spending trends. For example:

• Hospital spending growth is forecast to fall to 6.5 percent in 2004, from a recent peak of 9.5 percent in 2002. The authors make their assessment based on the effects of public program payment policies, an easing of workforce wage pressure, and signs that volume increases have begun to moderate.

• Prescription drug spending growth continues to slow, falling from a peak of 19.7 percent in 1999 to 12.9 percent in 2004. The government team says the slowdown results from the impact of multiple-tier insurance plans, the slowing pace of new drug introductions, and major drugs losing patent protection.

• Growth in private health insurance premiums is expected to slow, falling to 7.1 percent per enrollee in 2005 from 11.4 percent in 2002. The authors attribute this pattern to a projected slowdown in the underlying medical benefit costs combined with trends in the insurance market.

The projection does not incorporate changes to federal payment policies mandated under the Medicare Prescription Drug Improvement and Modernization Act of 2003 (MMA).

“From 2006 to 2013, the impact of MMA on aggregate drug spending growth is uncertain,” Heffler says. “However, we can expect a shift in payment from private sources and Medicaid to Medicare, most of which will occur in 2006 with the introduction of Medicare drug coverage.”

The article can be read at content.healthaffairs.org/cgi/content/abstract/hlthaff.w4.79.

A webcast of the briefing along with materials being released can be found on Kaisernetwork.org at: http://www.kaisernetwork.org/healthcast/healthaffairs/11feb04

Health Affairs, published by Project HOPE, is a bimonthly multidisciplinary journal devoted to publishing the leading edge in health policy thought and research.

©2004 Project HOPE–The People-to-People Health Foundation, Inc.