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Health-Care Costs Expected to Soar Over Next Decade
Published on Thursday, February 24, 2005 by Knight Ridder
Health-Care Costs Expected to Soar Over Next Decade
by Tony Pugh
 

WASHINGTON - U.S. health-care spending will outpace overall inflation and wage growth over the next 10 years, making medical care harder for the government, employers, workers and uninsured Americans to afford.

The increases apply to federal spending and to private spending on health insurance premiums, the latter of which will grow faster than disposable income in each year through 2014, according to new projections released Wednesday by the federal Centers for Medicare and Medicaid Services.

Although the long-term national health spending growth rate will slow a bit compared with recent years, more low-income workers are likely to forgo job-based health care because it's too expensive, several analysts said.

The new figures, which show the government picking up nearly half of total health-care spending by 2014, also suggest that Medicare and Medicaid are far more immediate cost concerns for federal policymakers than Social Security

"It is absolutely clear that as costs increase, more low-wage people will become uninsured,'' said David Cutler, an economics professor at Harvard University and an expert in health-care finance.

"This is going to lead to continued erosion of health insurance coverage," said economist Paul Ginsburg, president of The Center for Studying Health System Change, a nonpartisan health-research group in Washington. Rather than pay rising insurance premiums, he said, "low-income workers would just as soon have the money because they can't afford to spend so much of their income on health care."

The annual Medicare-Medicaid report found that public and private spending for health care will total $3.6 trillion by 2014 - about $11,045 per person - and eat up a record 19 percent of gross domestic product. That's up from a projected $1.9 trillion in 2005 that will likely account for 15.4 percent of annual GDP and average $6,423 per person. The government will fund 49 percent of all health spending in the United States by 2014 - a record share - due largely to the new Medicare prescription drug benefit.

The pinch of rising health-care costs, along with recent federal tax cuts and the growing national budget deficit, shows up indirectly in President Bush's proposed 2006 domestic spending cuts for transportation, education, community development and natural resources.

The number of uninsured Americans jumped by 5 million to 45 million during Bush's first term, due mainly to a sour economy and cuts in the Medicaid program.

Bush hopes to offset growth in the uninsured population by expanding Medicaid coverage, said Health and Human Services Department spokesman Bill Pierce. That can be done at no extra cost if states are given the flexibility to change or offer less-generous Medicaid benefits without federal approval, Pierce said. Congress has yet to give Bush that authority.

Bush also would provide poor families with annual tax credits of $1,000 to help purchase private health care.

That falls so far short from the actual cost of family coverage - about $10,000 a year - that few poor families are likely to take Bush up on it, said Ginsburg.

Enrollment in employer-sponsored health plans also declined by nearly 1 percent in 2001, 2002 and 2003, the most current data available. That reflects health-care costs that have outpaced wage growth.

While employer-sponsored plans are projected to cover more people in the next decade, the percentage of Americans covered under those plans will continue to fall, said Stephen Heffler, the study's lead author and director of the National Health Statistics Group at the Centers for Medicare and Medicaid Services.

Other key findings:

  • Medicare spending will jump from $332 billion in 2005 to $425 billion in 2006 when the new prescription-drug benefit begins. Discounts negotiated by insurers are expected to average about 15 percent in the first year and to peak at 25 percent in 2011.
  • Total prescription-drug spending will grow 11.6 percent in 2006 to $249 billion.
  • Medicaid spending in 2004 - which hasn't yet been calculated - is projected to increase to $290 billion from $269 billion in 2003. By 2014, Medicaid spending is expected to hit $618 billion.

To read the report on long-term health spending trends, go to http://content.healthaffairs.org/cgi/content/full/hlthaff.w5.74/DC1

© 2005 Knight Ridder

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