NCPA - National Center for Policy Analysis


April 23, 2009

Congress and President Obama appear intent on pursuing two conflicting goals for public and private health care: reining in rising costs while also increasing spending in order to expand insurance coverage to more people, says Andrew J. Rettenmaier, Executive Associate Director of the Private Enterprise Research Center at Texas A&M University and a senior fellow with the National Center for Policy Analysis.

Health care spending is a growing share of the economy and forecasts  by the Congressional Budget Office (CBO) and the Office of the Actuary at the Centers for Medicare and Medicaid Services (CMS) suggest that it will continue to grow well into the future, says Rettenmaier:

  • Over the past four decades, the share of gross domestic product (GDP) spent on health care has more than tripled from 5 percent to 16 percent.
  • Recent CBO and CMS forecasts suggest that health care spending will top 30 percent by 2040.
  • The CBO's projections show that health care spending may grow to as much as 50 percent of GDP by 2082.

Given that 45 percent of health care spending is currently funded by government payers, future budget implications are staggering, says Rettenmaier.  For example, in addition to dedicated payroll taxes and premium payments, federal spending on Medicare will:

  • Require funding equal to 36 percent of federal income taxes by 2030, based on the CMS forecast.
  • Require funding equal to almost 70 percent of federal income taxes by midcentury, based on the CBO forecast.

The CBO and CMS forecasts assume that health care growth will moderate.  But what will cause this moderation?  Will health care be rationed?  Will additional constraints be placed on providers?  Will patients choose between health care and other uses of money?  In other words, these forecasts assume tough choices will be made.  How these choices are made will frame public policies in coming years, says Rettenmaier.

Source: Andrew J. Rettenmaier, "Health Care Spending Forecasts," National Center for Policy Analysis, Brief Analysis No. 654, April 23, 2009.

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