Posted on February 26, 2008

Health care spending for 2008


Health Spending Projections Through 2017: The Baby-Boom Generation Is Coming To Medicare

By Sean Keehan, Andrea Sisko, et al (Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group)
Health Affairs
February 26, 2008

Projected spending for 2008

$2,394.3 billion - National Health Expenditures (NHE)

$7,867.7 - NHE per capita

16.6% - NHE as percent of GDP

Over the projection period in this paper (2007-2017), growth is anticipated to remain steady at around 6.7 percent per year, yielding an estimated $4.3 trillion in health spending in 2017.

Gross domestic product (GDP) growth is expected to average 4.7 percent per year over the projection period. Therefore, health spending growth is expected to outpace economic growth by an average of 1.9 percentage points annually.

Factors Contributing To Growth

The primary drivers of personal health care spending growth during the projection period are medical prices and utilization, followed by smaller impacts from population growth and the age-sex mix.

Since 1995, widespread selective contracting associated with the expansion of managed care has mitigated growth in medical price inflation. During that time, this output price inflation has averaged slower growth than the CMS index of medical input prices. The slower growth in medical price inflation relative to growth in input costs also reflects declines in real physician incomes relative to those of other professional and technical occupations.

Utilization, which includes both the volume and intensity of services, is primarily influenced by trends in real household income and, to a lesser extent, the substitution effect associated with relative medical price inflation and shifts in insurance coverage. …the expectation of slower disposable income growth from 2008 to 2017 is the primary driver for the slowing growth in utilization toward the end of the projection period.

The impact of the population aging is expected to account for a relatively small share of future health care spending growth on a per enrollee basis but to have a substantial influence on the public share of spending growth, as the leading edge of the baby-boom generation becomes eligible for Medicare.

Over the remainder of the period and in response to projected slowing economic growth, employers could shift more costs to employees through benefit buy-downs and increased cost sharing, resulting in a convergence of the growth rates for out-of-pocket and private insurance spending. The impact of consumer-directed health plans on out-of-pocket spending has been, and is expected to remain, minor.


By Don McCanne, MD

The projected numbers for 2008, listed above, are the most reliable estimates of our current health care spending. They are the numbers you should use in your advocacy work.

There are no surprises in this projection. Heath care costs/prices continue to increase at rates well in excess of inflation, and continue to outpace GDP growth by about two percent. The latter is of concern to many since they would rather spend more in other sectors of our economy.

Much attention will be directed to the shift of Baby Boomers from private to public financing. As a result, there will be increased political pressure to halt the “unsustainable” spending growth in entitlement programs - Medicare and Medicaid. But compared to the total NHE, this shift is quite small. Over the next decade projected growth in NHE is expected to be 6.7 percent, whereas growth in public spending is expected to be 7.2 percent, and Medicare specifically, 7.4 percent. Medicare should not be singled out as an isolated problem that needs to be fixed, while ignoring the rest of our health care spending.

The pseudo-hysteria that we will see is exemplified by the statement of Rep. Paul Ryan (R-WI) posted on the Health Affairs blog simultaneously with this report. Rep. Ryan states, “…these are not signs that the health care market has failed. In fact — and it is crucial to understand this — they are the predictable results of vast distortions imposed on the market over decades. The government is the single greatest contributor to this problem…”

Obfuscation of the issues based on personal ideology is the last thing we need right now from our political leaders. The problems of our high-cost but mediocre health care system cannot be repaired without appropriate government action. We need to elect politicians who understand this, and then they need to get to work.