Annual U.S. Health Care Spending Expected To Double By 2016 To Nearly $4T, CMS Report Finds

Main Category: Public Health
Article Date: 23 Feb 2007 - 22:00 PDT

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U.S. health care spending by 2016 will almost double to $4.1 trillion and account for 20% of every dollar spent, according to a report released on Wednesday by the National Health Statistics Group at CMS, the Los Angeles Times reports. According to the report, published on the Health Affairs Web site, public and private health care spending will increase to about $12,782 per capita by 2016 from about $7,498 per capita in 2006 (Alonso-Zaldivar, Los Angeles Times, 2/21). The report estimated that public spending will account for 48.7% of total health care spending by 2016, compared with 40% in 1990 and 38% in 1970. In addition, the report estimated that total out-of-pocket health care spending will increase to $440.8 billion by 2016 from about $250.6 billion in 2006 (Zhang/Fuhrmans, Wall Street Journal, 2/21). Costs for core health care services, such as hospitals and physicians until 2016 will increase by 6% to 7% annually, or about one to two percentage points more than the overall economy, according to the report (Los Angeles Times, 2/21).

Prescription Drug Spending
Medicare, Medicaid and other public programs currently account for 40% of prescription drug spending, compared with 28% in 2005, before the Medicare prescription drug benefit took effect, the report found. According to the report, the increase in public prescription drug spending could result in future problems because the Medicare prescription drug benefit lacks a long-term financial stability. The report found that the Medicare prescription drug benefit has limited growth in prescription drug spending but does not provide the same level of discounts on prices as Medicaid (Los Angeles Times, 2/21). The report estimated that prescription drug spending increased to $214 billion in 2006 from $201 billion in 2005 and that spending would have increased by 0.4% more without the Medicare prescription drug benefit (Lee, Washington Post, 2/21).

Medicare, Medicaid Spending
The report estimated that total Medicare spending increased by 22% to $418 billion in 2006 from $342 billion in 2005 and that spending would increase by only 6.5% in 2007 because of reductions in reimbursements to physicians and smaller increases in payments to Medicare Advantage plans. The report also estimated that by 2016 32% of eligible beneficiaries will enroll in Medicare Advantage plans, compared with 13.5% in 2005. According to the report, Medicaid spending in 2006 totaled $313.5 billion, about the same amount as in 2005. Medicaid prescription drug spending decreased in 2006 by 36% as a result of the Medicare prescription drug benefit, which took over coverage for some Medicaid beneficiaries, the report found. The report estimated that growth in Medicaid spending in other areas, such as hospitals and physicians, will decrease as a result of state efforts to reduce costs and reduced growth in enrollment. However, the report estimated that growth in Medicaid spending in other areas, such as home health care, will increase. Medicaid home health care spending in 2006 increased by 20%, compared with a 14% increase in 2005, according to the report. The report also estimated that private health insurer spending in 2006 increased by 4.7%, compared with a 9.5% increase in 2001.

Author Conclusions
The authors of the report wrote, "We are moving incrementally away from traditional sources of insurance, such as employer-based coverage, to a system comprising more federal and state government-provided health care." According to John Poisal, lead author of the report, "We will continue to face tough questions about how we finance our health care bill" as that shift occurs (Wall Street Journal, 2/21). The report did not make health care policy recommendations but warned of the possibility "that we will have to make important sacrifices to pay for health care" and of a need for "constant assessment of the value we associate with our health care investment" (Los Angeles Times, 2/21).

Reaction
HHS Secretary Mike Leavitt said, "America's per capita health spending is the highest in the world. There is simply no place on the economic leader board for a nation that spends a fifth of its domestic product on health care" (Freking, AP/Houston Chronicle, 2/21). Robert Bixby, executive director of the Concord Coalition, said that the cost of health care "is really the key issue for the fiscal future of the nation," adding, "If health care costs continue to drift up -- unless you dramatically raise taxes -- you will have health care pushing out everything else government does. Nobody can say exactly when you reach a point that it's unsustainable, but you can look at something and say it's unlikely." Ron Pollack, executive director of Families USA said, "As health care spending increases faster than earnings, it means more and more people will find health care unaffordable and join the ranks of the uninsured and underinsured" (Los Angeles Times, 2/21). Karen Davis, president of the Commonwealth Fund, said that, although growth in health care spending has decreased in recent years, the "cost problem isn't solved." She added, "Now, when you look at these numbers, you realize we've got to get serious about transforming the health care system" (Washington Post, 2/21). Robert Berenson, a senior fellow at the Urban Institute health care center, said, "We need some kind of comprehensive approach to control costs" (Wall Street Journal, 2/21).

The report is available online.

Broadcast Coverage
APM's "Marketplace Morning Report" on Wednesday covered the report. The segment includes comments from Peter Lurie, deputy director of the Health Research Group at Public Citizen, and Glenn Melnick, a professor of health care finance at the University of Southern California-Los Angeles (Gardner, "Marketplace Morning Report," APM, 2/21). Audio and a transcript of the segment are available online. In addition, Leavitt discussed health care proposals from President Bush in an "Ask the White House" online chat on Wednesday at 10 a.m. ET. A transcript will be available online after the chat.

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