Thursday, June 21, 2012

Health Care at 20% of GDP?

Back in the late 1970s and early 1980s, when I was first getting my feet wet in the arguments over health care finance, it was common to point out that national health care spending had risen from 5.5.-6.0% of GDP in the early 1960s to 9.2% of  GDP by 1980. Surely, we argued, such an increase couldn't continue. By 1993, early in the Clinton administration, when proposals for reforming health care finance were in the air, health care spending had reached an extraordinarily high 13.8% of GDP. Surely it was close to topping out?!?

But by 2009, when the Obama administration's health care reform package was announced, national health care spending had reached an unbelievably high 17.8% of GDP.  After several decades of watching U.S. health care spending climb higher than I would have believed plausible, I suppose I should be inured to the trend. But I still found my eyes bulging at the most recent official projections that health care spending will hit 19.6% of GDP by 2021. The estimates are from a team of actuaries from the Centers for Medicare and Medicaid Services, led by senior economist Sean P. Keehan, and they appear in "National Health Expenditure Projections: Modest Annual Growth Until Coverage Expands And Economic Growth Accelerates" in the July 2012 issue of Health Affairs.  

 The actuaries project relatively slow growth in health care spending through 2013, due to the " sustained effects of the recent recession and modest recovery on projected growth in disposable personal income, insurance coverage,and unemployment rates ..." But as the economy recovers, demand for health insurance and health care will pick up again. Also, "[b]eginning in 2014, major coverage expansions from the Affordable Care Act will take effect. These expansions are expected to increase the number of people with health insurance; the demand for health care (particularly prescription drugs and physician care); and the share of total health spending sponsored by federal, state, and local governments." Here are a few highlights from the much more detailed and lengthy tables. First, here is total health care spending, per capita health care spending, and health care spending as a share of GDP projected for 2021.

And here are a few bits from a more detailed table in which total health care spending is divided up into who pays the bills: private business (through private health insurance), households (through private health insurance premiums and out-of-pocket spending) and government (including federal, state and local government, both government programs that provide health insurance to citizens as well as health insurance for government employees). The government share of health care spending was 46% in 2011, and is projected to be 49.6% of health care spending in 2021. 

This is a "current law" projection of costs, so it assumes that various methods to control costs will be imposed and work as they are currently written into law. In turn, this means that the cost estimates are more likely biased low than high. With only a bit of rounding, we seem headed for health care spending levels that I wouldn't have believed back in the late 1970s, and can barely believe now: total health care spending at 20% of GDP, with government paying half the bills.