Advanced Search

Medicare Compliance & Reimbursement

Health Spending:

Expect Scrutiny Of Health Prices As Spending Continues Upward

Published on Sun Feb 06, 2005

Growth rate is considerably higher than projected growth for the U.S. economy overall

On average, national spending on health care is expected to see an annual growth rate of around 7.5 percent in the decade from 2004 through 2014.

The rate will propel total U.S. health spending from $1.8 trillion in 2004 to $3.6 trillion in 2014, or from a 15.3 percent share of the national gross domestic product in 2003 to an 18.7 percent portion in 2014. So says the annual national health expenditure projection just released by the Centers for Medicare and Medicaid Services Office of the Actuary and published on the Health Affairs Web site.

With numbers so big, "you can amaze people very quickly," remarked American Institutes of Research Vice President Marilyn Moon at a Feb. 23 forum.

  • Past decade a happy aberration, actuaries say. Something unusual happened to U.S. health spending in the decade from 1993 to 2003: It stayed relatively constant as a share of gross domestic product, thanks in large part to the switch from indemnity health insurance to managed care, said Stephen Heffler, director of CMS's National Health Statistics Group.

    But those days are gone, Heffler told the briefing sponsored by the Kaiser Family Foundation and Health Affairs. Over the next decade, national health expenditures will return to their long-term historical pattern, maintaining a "pretty steady rise" as share of GDP, he said.

  • Congressional critics to the contrary, don't blame Part D. Outrage on Capitol Hill over recently updated ten-year cost estimates for Medicare's new Part D notwithstanding, the prescription drug benefit will play virtually no role in increasing overall health spending after it launches next January, said Heffler.

    Without the Medicare benefit, total U.S. prescription drug spending will grow by 11.1 percent in 2006, according to the actuaries. With Part D included, 11.6-percent growth, or about an extra billion dollars in spending, is projected, Heffler said.

    That amounts to just under "one half of one tenth of one percent" of overall U.S. health spending, a truly negligible amount of total NHE that CMS estimates at $2.0775 trillion for 2006, he noted.

    The actuaries anticipate that Part D will produce 15-percent price discounts, on average, in 2006, increasing to 25 percent by 2011, at which time discounts will plateau. Utilization is expected to increase as beneficiaries who previously lacked drug coverage take up the benefit. However, the actuaries project that price discounts and increased usage will largely offset each other.

    The most significant changes resulting from the benefit will not be in how much money is spent but in who spends it, said Heffler.

    As Medicare's share of prescription spending shoots from 2 percent of the total in 2005 to 28 percent in 2006, the share of drug costs paid by state Medicaid programs, private insurers, and individuals will decline. Private insurers' share will drop from 47 percent to 39 percent, Medicaid's from 18 to 9 percent, and individual out-of-pocket spending from 29 percent to 20 percent.

    The payer-to-payer shift observed in Part D illustrates that much of what passes for health-care policy change is only "redistribution" that cuts one payer's spending while raising another payer's share, Moon noted.

    Unless policymakers differentiate approaches that address cost and value issues from tactics that merely redistribute the burden, they are likely to perpetuate an endless cycle of health-spending hot potato, Urban Institute Senior Fellow Eugene Steuerle suggested.

    For example, as prices rise high, a drop-off in private insurance coverage follows, he noted. Then the decline in private coverage raises Medicaid costs, leading states to scramble for ways to spend less of their revenues, perhaps through accounting tricks that draw down more federal funds, and so on.

    • Other Articles in this issue of

    Medicare Compliance & Reimbursement

    View All