Health Spending Will Account for 20% of U.S. Economy by 2020, Study Shows

Health-care spending will make up 20 percent of the U.S. gross domestic product by the end of the decade, an increase of more than 2 percentage points from 2009 as government subsidies expand, federal auditors said.

National health expenditures rose 4 percent to $2.6 trillion in 2010 from a year earlier, the Office of the Actuary at the U.S. Centers for Medicare and Medicaid Services estimates today in an article in the journal Health Affairs. Growth will be fueled by demand from 30 million Americans who will receive new subsidies under the health overhaul.

Health expenses this decade will rise at an average annual rate of 5.8 percent, or 1.1 percent more than anticipated U.S. economic growth. Higher spending on health insurance, prescription drugs and physician services will outstrip rising hospital costs as younger, healthier Americans enroll in government-financed health programs, the actuaries report.

“It just rearranges health-care spending so different people get to take advantage of it,” said Joseph Antos, an economist at the American Enterprise Institute, a Washington policy organization, in a telephone interview yesterday. “It really doesn’t reduce health-care spending.”

Spending on health-care products and services will increase an average of 6.2 percent in the last five years of the decade when the coverage expansions from the health law are in effect, or within one percentage point of expenditures would have been absent the law.

Coverage Expands

The study indicates the health overhaul will be successful because “more Americans will get coverage and save money and health-expenditure growth will remain virtually the same,” Nancy-Ann DeParle, deputy chief of staff to President Barack Obama, wrote on the White House website today.

During 2014, the first year the health overhaul begins providing subsidies for private insurance and expanding eligibility for Medicaid, national spending will rise 8.3 percent, according to the findings.

The Office of the Actuary is an independent auditing entity within the Baltimore-based agency that runs Medicare, the health program for the elderly and disabled, and Medicaid, a joint federal-state health benefit for the poor.

National spending on health insurance premiums to companies led by Minnetonka, Minnesota-based UnitedHealth Group Inc. (UNH) will rise 9 percent in 2014, or 4 percentage points higher than they would have if the health overhaul weren’t law. The increase will be driven by 14 million people obtaining private coverage through the state-based health-insurance exchanges the law creates, the actuaries project.

Added Demand

The actuaries predict that the 23 million people who will receive health insurance in 2014 that otherwise wouldn’t have and will be younger and healthier than those now covered, increasing demand for prescription drugs and physician services.

Spending on prescription medicines from drugmakers led by New York-based Pfizer Inc. (PFE) will increase 11 percent in 2014, or more than twice as fast than if the health overhaul weren’t enacted, according to the projections.

In 2014, spending on hospital services from companies led by HCA Holdings Inc. of Nashville, Tennessee, will increase 7 percent, or 1 percentage point higher than projected without the overhaul. Newly insured people will drive up spending on physician services by 9 percent in 2014, 3 percentage points more than projected without the health law, the actuaries conclude.

To contact the reporter on this story: Jeffrey Young in Washington at jyoung89@bloomberg.net.

To contact the editor responsible for this story: Adriel Bettelheim at abettelheim@bloomberg.net.

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