NCPA - National Center for Policy Analysis

Steep Rise in Health Costs Projected

June 15, 2012

Defying historical trends, health spending in the United States has slowed dramatically since the recession began.  As individual consumers have seen a reduction in their disposable income, they have been forced to cut back on typical expenditure categories.  As a result, elective health care spending has been delayed or forgone, causing the slowdown, says the Wall Street Journal.

  • National health care spending growth was 3.8 percent in 2009, the smallest increase on record, and was followed by a similar 3.9 percent in 2010.
  • In a new report published by Health Affairs, economists project similar rises averaging 4 percent annually for 2011, 2012 and 2013. (Actual 2011 spending hasn't yet been calculated.)
  • These increases are roughly on track with growth in the economy as a whole, meaning that health spending as a portion of gross domestic product (GDP) has remained relatively constant.

Some economists have analyzed these figures and suggested that they may portend lower health spending for the foreseeable future.  However, the Health Affairs study debunks this, stating that the full implementation of the health care reform law and an aging population will result in a significant increase in spending.

  • According to the study, spending will jump 7.4 percent in 2014 when the health care law is scheduled to be fully implemented.
  • This is partially due to the aging of the baby boomer population, which will result in greater consumption of expensive health care services and products.
  • Also, the health care reform law will allow millions of Americans to gain coverage through subsidized insurance plans purchased through government-run exchanges, augmenting consumption.
  • This increased growth rate will have longevity: the report projects that it will average 6.2 percent annual growth from 2015 to 2021.
  • Though only 0.1 percent of this increased growth is attributable to the reform law, this amounts to $478 billion by 2021.

By 2021, health care spending is projected to be 19.6 percent of GDP, up from 17.9 percent in 2010. The government share of the spending also would be greater, at nearly 50 percent, up from 46 percent, mostly because of the anticipated growth in Medicare enrollment.

Source: Louise Radnofsky, "Steep Rise in Health Costs Projected," Wall Street Journal, June 12, 2012.  Sean P. Keehan et al., "National Health Expenditure Projections: Modest Annual Growth until Coverage Expands and Economic Growth Accelerates," Health Affairs, June 2012.

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