Public Programs To Account for 49% of U.S. Health Care Spending by 2014, CMS Report Estimates
U.S. health care spending growth will continue to stabilize over the next 10 years, but public programs will account for almost half of total health care spending by 2014, in large part because of the new Medicare prescription drug benefit, according to a report conducted by CMS analysts published on the Health Affairs Web site, the Wall Street Journal reports (Lueck, Wall Street Journal, 2/24).
The report, released on Wednesday at a forum sponsored by Health Affairs and the Kaiser Family Foundation, examines public and private health care spending estimates between 2004 and 2014. According to Stephen Heffler, director of the National Health Statistics Group at CMS and a co-author of the report, the health care spending estimates included in the report are the first to take into account the cost of the Medicare prescription drug benefit (CQ HealthBeat, 2/23).
According to the report:
- Public programs by 2014 will account for 49% -- or $1.8 trillion -- of the $3.6 trillion in health care spending (AP/St. Petersburg Times, 2/24). In comparison, public programs currently account for about 46% of health care spending.
- Health care spending growth in 2014 will continue to decrease to 6.7%, compared with 7.5% in 2004. Between 2001 and 2002, health care spending growth reached a high of 9.3%.
- Health care spending by 2014 will account for almost 19% of U.S. gross domestic product, compared with 15% in 2003 (Wall Street Journal, 2/24).
- The United States by 2014 will spend the equivalent of $11,046 per resident on health care annually, compared with $6,040 in 2004 (McFeatters, Pittsburgh Post-Gazette, 2/24).
- Private health care spending growth will decrease to 7.4% in 2003 and 2004 from a high of 9% in 2001 and 2002 as a result of a "quiet reimposition" of managed care.
- Private health insurance premium rate growth will decrease from 9.9% in 2003 to 7.7% in 2004 and will exceed disposable personal-income growth by 1.4 percentage points between 2004 and 2014 (Wall Street Journal, 2/24). As a result, fewer employers might offer health benefits to employees (Pittsburgh Post-Gazette, 2/24).
According to the report, the Medicare prescription drug benefit will have "only a minor effect on total prescription drug spending" and total health care spending but will cause a large shift in who covers the cost of health care in the United States, the New York Times reports.
The report said:
- Medicare prescription drug spending will increase from $4.5 billion in 2004 to $69.9 billion in 2006, when the prescription drug benefit begins (Pear, New York Times, 2/24). Medicare in 2006 will account for 28% of total prescription drug spending, compared with 2% in 2005 (Appleby, USA Today, 2/24). The estimates do not include certain offsets, such as premiums paid by Medicare beneficiaries.
- Medicaid spending on prescription drugs will decrease from the current $40.5 billion -- or 18% of total prescription drug spending -- to $23 billion -- or 9% of total prescription drug spending -- in 2006. States also will contribute to the cost of the Medicare prescription drug benefit, but those amounts are not included in Medicaid prescription drug spending.
- Private prescription drug spending, which includes private health insurance and out-of-pocket expenditures, in 2006 will decrease to $147 billion -- or 59% of total prescription drug spending -- from the current $170 billion -- or 76% of total prescription drug spending (New York Times, 2/24).
- The addition of the Medicare prescription drug benefit will result in a rise in prescription drug use by beneficiaries, with total prescription drug spending estimated to increase by 11.6% in 2006. A rise in prescription drug prices will account for 2.4 percentage points of the increase.
- Prescription drug spending in 2004 will account for the largest share of total out-of-pocket health care spending at 24% (Wall Street Journal, 2/24).
- Prescription drug spending in 2014 will account for 14.5% of total health care spending, compared with 11% in 2004 (New York Times, 2/24).
- Prescription drug spending growth will decrease to 11.9% in 2004 and 8.7% in 2014, in part because of reduced prescription drug price growth, increased use of generic medications and increased use of multitiered copayment systems.
According to the report:
- Hospital spending growth will increase from 6.5% in 2003 to 7% in 2004.
- Home health care spending growth will increase from 9.5% in 2003 to 13% in 2004 because of expected increases in Medicare and Medicaid spending.
- Nursing home spending growth will increase from 4% in 2003 to 4.2% in 2004 (CQ HealthBeat, 2/23).
CMS officials "emphasized that their numbers aren't certain, in part because it's difficult to predict the impact of the new Medicare drug coverage," the Journal reports. They added that the estimates in the report are based on current law and do not take into account possible future policy revisions (Wall Street Journal, 2/24).
According to the New York Times, the report assumes that 38.9 million Medicare beneficiaries -- or more than 90% of those eligible -- will participate in the new prescription drug benefit, although "some evidence suggests this estimate may prove too high" (New York Times, 2/24).
Heffler added that the share of public health care spending likely will increase after 2014 because of the increased number of baby boomers who will become eligible for Medicare (Strahinich, Boston Herald, 2/24).
In the report, the CMS analysts said that public health care expenditures in 2014 will represent "a record share that could have important implications for the budget as a whole" (AP/St. Petersburg Times, 2/24). According to CMS analysts, "barring enormous tax increases," public health care spending in 2014 "would crowd out virtually all other spending except for the military and interest on the national debt," the Raleigh News & Observer reports (O'Rourke, Raleigh News & Observer, 2/24).
Heffler said, "These trends will test society's willingness to find ways to slow cost growth without compromising quality or access" (CQ HealthBeat, 2/23).
CMS analysts also "urged the White House and Congress to turn their attention quickly to health care costs," with the Medicare hospital trust fund expected to become insolvent in 2019, "well before the 2042 projected date for Social Security to use up its reserves," the News & Observer reports (Raleigh News & Observer, 2/24).
According to CMS chief actuary Richard Foster, only the first members of the baby boom generation by 2014 will have become eligible for Medicare, adding, "In the future, it is almost without doubt that the public share will cross over (50% of total spending) and continue to grow for at least 30 years" (Havemann/Alonso-Zaldivar, Los Angeles Times, 2/24). He added that based on current law, "we as a society collectively might not be able to get the health care we really want" (Wall Street Journal, 2/24).
CMS Administrator Mark McClellan said, "While providing much greater access to drugs and modern medical care, the new Medicare benefits are not projected to significantly increase medical cost growth" (Schuler, CQ Today, 2/23). He added, "We intend to use the tools provided by the new Medicare law to increase efficiency and get even more for our health care spending" (Richmond Times-Dispatch, 2/24).
Eugene Steuerle, an economist with the Urban Institute, said, "We all know the current system is not sustainable: Health care cannot keep rising faster than gross domestic product" (USA Today, 2/24).
Marilyn Moon, vice president and director of the health program at the American Institutes for Research, said the Medicare prescription drug benefit "will have an enormous redistributive effect" (Heil, CongressDaily, 2/23). She added, "In the long run, the only way to save" Medicare is to "put a crowbar in our wallets and pay for it" (Wall Street Journal, 2/24). Moon also said that although Medicare will account for a larger share of prescription drug spending in the future, out-of-pocket expenditures for beneficiaries will continue to increase (CongressDaily, 2/23).
Paul Ginsburg, president of the Center for Studying Health System Change, said, "This is going to lead to continued erosion of health insurance coverage," adding that rather than pay increased health insurance premiums, "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."
David Cutler, a health care finance expert at Harvard University, said, "It is absolutely clear that as costs increase, more low-wage people will become uninsured" (Pugh, Knight Ridder/Indianapolis Star, 2/24).
Meanwhile, a coalition of health care providers and suppliers said that the report "took no account of the benefits of increased health spending," such as lower mortality rates, longer life expectancies, fewer hospital stays and less disability among the elderly, the New York Times reports (New York Times, 2/24).
The report is available online.