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Health care spending expected to double in about 10 years

WASHINGTON—National health care spending will double to $4 trillion a year over the next decade, outpacing the growth of wages, inflation and the U.S. economy as a whole, according to new government projections released Tuesday.

By 2015, one in every five dollars spent in the United States will go toward medical costs.

The sobering cost data reflect the impact of aging baby boomers born before 1964, the cost of the Medicare prescription-drug benefit, declining rates of insurance coverage and rising hospital costs, among other factors.

The projections estimate that collective public and private spending for health care will average about $12,320 per person in 2015, compared with $6,683 per person in 2005.

Total health spending is expected to grow 7.2 percent a year over the next 10 years, more than 2 percentage points faster than projected growth in gross domestic product, the total value of goods and services, over the same period, according to the annual report by actuaries from the federal Centers for Medicare and Medicaid Services.

The increased spending on health care, combined with a trend by private insurers to pass more costs on to consumers, means fewer people, particularly the working poor, will be able to afford health care in the coming years.

Economist Paul Ginsburg, president of The Center for Studying Health System Change, a nonpartisan health research group in Washington, said: "When spending on health care goes up faster than earnings, lower-paid people are priced out of the health insurance market."

Likewise, Ginsburg said, employers will be less likely to provide coverage. "If a company can offer lower wages with insurance or a higher wage without it, the higher wage without insurance usually wins out" because workers would rather have the extra money, Ginsburg said.

The long-term projections also portend greater fiscal pressure on states and the federal government, whose tax revenues typically grow with gross domestic product (GDP).

"But if GDP is being outstripped by health care spending," Ginsburg said, "it will cause greater problems paying for programs like Medicaid and Medicare," the public health insurance programs for the poor and for the elderly.

The government estimates, based on data for 2005 that hasn't yet been fully tallied, show that Medicare spending is projected to grow from $335 billion in 2005 to $792 billion in 2015. State and federal spending for Medicaid will likely jump from $450 billion in 2005 to $904 billion in 2015. The dramatic spending growth means tax increases or benefit reductions in both programs are distinct possibilities, Ginsburg said.

Taxpayer-funded health care was expected to increase 24.3 percent in 2005 to $11.3 billion, due mainly to relief efforts for Hurricanes Katrina and Rita. Private health insurance premiums were expected to grow 6.8 percent in 2005, compared with 8.4 percent in 2004. The report said the slower rate of growth reflects a slowdown in drug usage, greater use of managed-care techniques and the impact of growing out-of-pocket costs on consumer demand, the report said.

The report also said that discounts negotiated by private drug plans that administer the new Medicare drug benefit will average 27 percent in 2006, compared with a previous estimate of 15 percent.

"The prescription-drug plans were able to negotiate discounts and rebates that came in larger than we thought, and this has helped mitigate what drug spending would have been," said John Poisal, deputy director of the National Health Statistics Group at the Centers for Medicare and Medicaid Services.

Other key findings from the report:

_Total annual hospital spending will grow to $1.2 trillion in 2015, twice the $616 billion spent in 2005.

_Annual prescription-drug spending will reach $446 billion in 2015, up from $203 billion in 2005. That works out to an average annual growth rate of 8.2 percent over the next decade.

_Even though total health care spending will increase, out-of-pocket spending as a share of that total is expected to fall from 15.1 percent in 2004 to 12.6 percent in 2015.

To see the long-term health spending forecast, go to http://content.healthaffairs.org/cgi/content/abstract/hlthaff.25.w61

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(c) 2006, Knight Ridder/Tribune Information Services.

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