HEALTH CARE EXPENDITURES IN 2040
November 14, 2008
According to Health Affairs, the United States spent 16 percent of gross domestic product (GDP) on health expenditures in 2006. What will we be spending on health care in 2040? Robert Fogel, a researcher with the National Bureau of Economic Research (NBER) takes a stab at answering this question. He claims that by 2040, the United States will spend 29 percent of GDP on health care.
There are four main avenues by which health care spending will change, says Fogel:
- There will likely be a continued downward trend in the age-specific prevalence of chronic diseases; the prevalence of age specific chronic diseases "declined at a rate of about 1 percent per annum between 1910 and 1980."
- The cost of treating diseases will change by 2040; in the future, will innovations create higher quality medical care at higher cost, or will these innovations decrease health care spending?
- As life expectancy increases and fertility rates decrease, we will likely see an increase in the share of the population who is elderly; this will of course lead to increased health care spending even if the prevalence of age-specific chronic diseases and treatment costs remain constant.
- Health care is a luxury good, so as incomes rise, individuals general spend a higher share of their income on medical care; Fogel (2000) estimates that the long-term income elasticity of health care consumption is 1.6.
Using these four assumptions, Fogel claims the United States will spend 29 percent of GDP on health care. U.S. GDP in 2007 was $13.84 trillion. If we assume a 2.5 percent annual growth rate, 29 percent of GDP in 2040 means that the United States will spend $9.07 trillion on health care.
In the future, the health care system may need a bail-out as well, says Fogel.
Source: Health Care Expenditures in 2040," Health Care Economist, October 29, 2008; based upon: Robert W. Fogel, "Forecasting the Cost of U.S. Health Care in 2040," National Bureau of Economic Research, Working Paper No. 14361, September 2008.
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