Health Spending to Gobble Up More of U.S. Economy in Next Decade

A healthcare aide checks the vitals of a patient during a clinic event in Los Angeles, California.

A healthcare aide checks the vitals of a patient during a clinic event in Los Angeles, California.

Photographer: Patrick T. Fallon/Bloomberg

Spending on health care will take up an increasing proportion of the U.S. economy over the next decade as the population ages and more people gain insurance coverage under Obamacare, a government report said.

Payments for hospitals, doctors, drugs and insurance will rise by about 5.8 percent a year through 2024, 1.1 percentage points faster than overall economic growth, actuaries at the Centers for Medicare and Medicaid Services said Tuesday in an annual study. Health spending will account for 19.6 percent of gross domestic product in 2024, up from 17.7 percent last year.

The acceleration in health spending is a change from the past few years, when the recession that ended in 2009, and its aftermath, kept growth about in line with the economy. Still, it’s slower than in the three decades before the economic downturn, when it rose at about 9 percent a year, according to the report.

“There are some long-lasting factors that will most likely keep growth in health spending modest, even with a greater amount of the population insured,” Sean Keehan, a CMS economist, said on a conference call with reporters.

A lot of the spending growth comes from millions of people gaining insurance through the Patient Protection and Affordable Care Act -- the insured share of the population is projected to climb from 86 percent in 2013 to 92.4 percent by 2024.

At the same time, the country is aging. By 2024, the number of Medicare beneficiaries will climb to 70.3 million from 54.5 million this year, while Medicaid members will number 78.1 million, up from 70.5 million. Medicare covers the elderly and disabled, while Medicaid is intended for the poor.

No Forecast

What’s not yet clear is whether provisions of the Affordable Care Act designed to rein in the pace of spending increases, particularly in Medicare, will be effective. The U.S. no longer provides a forecast for what health spending would be in the absence of the ACA.

“To the extent that these programs have been implemented and actually illustrated savings, they’ve been incorporated,” Gigi Cuckler, a CMS economist, said on a conference call with reporters. “It’s still too early to determine whether these demonstrations will have a lasting effect on health spending.”

The spending-growth rate isn’t expected to return to pre-recession levels in part because higher deductibles and co-pays mean that consumers are bearing more of the costs of care than in the past, according to Keehan. Individuals may be more reluctant to spend money on health services that aren’t covered by insurers.

Drug Prices

The U.S. dedicates far more of its GDP to health care than other developed nations. Health spending was 10 percent of GDP in Canada last year and 11 percent in Germany, according to the Organisation for Economic Co-operation and Development.

Expensive cures for hepatitis C contributed to a 12.6 percent jump in prescription-drug spending in 2014, the biggest increase in more than a decade. Prescription medicines are expected to account for 10.4 percent of health spending in 2024, up from 9.3 percent in 2013, while the share going to physicians and clinical services will decline by a percentage point, to 19.1 percent.

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