NCPA - National Center for Policy Analysis


May 17, 2007

Since 1975, total spending on U.S. health care has doubled and it now comprises one-sixth of the U.S. economy, or about $2.2 trillion.  By 2016, some projections show total health spending almost doubling to $4.1 trillion and consuming one-fifth of the nation's gross domestic product (GDP).  Much of the increase in health costs has been paid for through direct government expenditures and tax subsidies, says Eugene Steuerle, a senior fellow at the Urban Institute.

Government health programs (principally Medicare and Medicaid) and tax subsidies accounted for more than half ($1.3 trillion) of total health expenditures in 2006.  Government statistics also reveal:

  • In 2006, total health care spending averaged $19,000 per household; about 58 percent of the total, or $11,000 per household, was in the form of government-subsidized health care.
  • By 2010, inflation-adjusted government health care spending is projected to grow to an average of $13,000 per household.
  • Health care will climb to 25.8 percent of total government outlays in 2008 and 28.4 percent in 2012.

The majority of growth in government spending on health care is due to Medicare, says Steuerle:

  • Medicare accounted for 38 percent of public spending on health care in 2005, and it has grown an average of 9.3 percent annually since 2002.  
  • The cost per beneficiary (Medicare and Medicaid) has continually been increasing faster than the per capita growth of the economy and the Medicare actuaries see no end in sight. 

Congress has attempted to cut reimbursements for Medicare providers, and the growth of Medicare was projected to slow to 6.5 percent this year.  However, legislators have already reversed the cuts in physician payments for 2007, so the actual growth rate may be higher, says Steuerle.

Source: Eugene Steuerle, "Is Health Spending Out of Control?" National Center for Policy Analysis, Brief Analysis No. 586, May 17, 2007.

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