Kaiser Daily Health Policy Report

Health Care Marketplace Health Care Spending Will Account for One-Fifth of GDP in 2018; Federal Government Will Pay More Than 50% of Those Costs, According to CMS Report [Feb 24, 2009]

Overall U.S. health care spending will reach $2.5 trillion in 2009, a 5.5% increase from 2008, when health care spending increased by 6.1%, according to a CMS report published Tuesday in the journal Health Affairs, the Wall Street Journal reports (Zhang, Wall Street Journal, 2/24).

Total health care spending will account for 17.6% of the gross domestic product in 2009, a full percentage point higher than 2008, marking the largest one-year increase since CMS began tracking health care spending in 1960 (Dunham, Reuters/Boston Globe, 2/24). The rate of health care spending growth is expected to decline over the next five years in part because people will lose their jobs and health coverage as the recession continues, and they will forgo medical treatment; however, the economy will be shrinking and growing at a slower rate, which will increase health care spending's share of GDP (Young, The Hill, 2/24).

The study found that in 2009, government health care spending is expected to increase by 7.4% to $1.19 trillion, while private health spending is expected to increase by 3.9% to $1.32 trillion (Wall Street Journal, 2/24). CMS projects that in 2018 overall U.S. health care spending will reach $4.35 trillion, accounting for 20.3% of the GDP (The Hill, 2/24). The study estimates that health care costs will average $8,160 per U.S. resident in 2009, up $356 from 2008, and will reach $13,100 per U.S. resident by 2018 (Alonso-Zaldivar, AP/Boston Globe, 2/24).

The report forecasts that the government will pay for more than 50% of total health care spending by 2016 and 51.3% by 2018, as Medicaid enrollment increases and baby boomers start enrolling in Medicare (Pugh, McClatchy/St. Paul Pioneer Press, 2/24). According to the study, Medicaid spending will increase from $352 billion in 2008 to $801 billion by 2018. The report estimates that Medicare enrollment increases will drive up the spending growth rate in the program from 6.2% in 2011 to 8.6% in 2018.

CMS predicts that final Medicare figures will show spending of $466 billion for 2008, 8.1% higher than in 2007 (Reichard, CQ HealthBeat, 2/24). According to the report, Medicare's hospital trust fund could become insolvent by 2016 -- three years earlier than previous estimates -- because of lower tax revenue caused by the recession (AP/Boston Globe, 2/24).

Additional Findings The study predicts that private health insurance enrollment will drop from 195.5 million in 2008 to 189.5 million in 2010 (CQ HealthBeat, 2/24). Private health spending is expected to increase as the economy improves, growing to 4.2% in 2010 and reaching 6.1% by 2018 (Reuters/Boston Globe, 2/24). The report also estimates spending growth rates for overall health spending in 2008 of 7.2% for hospitals, 6.2% for physician and clinical services, 9.1% for home health care, and 4.6% for nursing homes (CQ HealthBeat, 2/24). The rate of prescription drug spending increased by 3.5% in 2008, down from 4.9% in 2007, which study co-author Andrea Sisko attributes to U.S. residents' being more willing to use generics and less inclined to fill prescriptions as the economy declines.

The report projects that the recession would begin to improve in 2010 and health spending growth would surge again in 2011 (Reuters/Boston Globe, 2/24). The study did not examine the impact of the recently enacted stimulus package, which includes $87 billion in increased Medicaid aid, nor did the report take into account the expansion of CHIP (Wall Street Journal, 2/24). The estimate includes a scheduled 21% cut to Medicare physician payment rates, but Congress and President Obama are expected to block the cuts. The Congressional Budget Office has estimated that blocking the cut will cost at least $100 billion over 10 years (The Hill, 2/24).

The study is available online.

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