Health Care Spending Will Account for 20% of GDP by 2020, Government Report Says

Source: CNN Money

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Posted on 28 Jul 2011

The Centers for Medicare and Medicaid Services released a report indicating that thee U.S. government will foot the bill for half of all health care costs in the United States by 2020.

That's up from 44% just two years ago, and reflects both the rising cost of health care and the fact that millions more people will have access to it under health reform, said the report.

Health care spending per capita is forecast to increase to $13,708 in 2020 from $8,327 in 2010, the report said.

The agency makes these projections annually, but this is the first year that they include the impact of health reform, which expands insurance coverage to millions through government subsidized initiatives.

By 2020, nearly 30 million additional people are expected to have health insurance because of reform. But that will only have a marginal impact on health spending over the next few years, the report said.

From 2010 through 2020, the government expects health care spending to grow at an average annual rate of 5.8% -- including the impact of health reform. The CMS had previously forecast a growth rate of 5.7%.

Still, the new estimate far outpaces projected growth in the U.S. economy. The government estimates that by 2020, health care spending will account for 20% of the nation's economic output -- up from 17.6% of GDP in 2010.

The government report drew conflicting responses from industry watchers.

Leslie Norwalk, former acting administrator for CMS, said the report paints a "very difficult" situation for the country.

"The report shows health care spending is growing faster than the economy and faster than inflation," Norwalk said. "Health care spending will double by 2020, and the government will pay 50% of that -- this is troubling. How is that good, especially in the context of the current debate on the debt ceiling?"

Deborah Chollet, senior fellow and health economist at Mathematica Policy Research, took a different view of the report.

"The good news is that many more people will get health care coverage, for very little change in the rate of increase in overall health care spending," Chollet said.

Chollet said the report shows that health reform is having very little impact in driving up health care costs through 2020.

Instead, Chollet suspects health care spending is going up more because of higher prices for care, greater utilization of health care services, and changing demographics tied to a larger aging population.

Over the 10-year period, the report showed that the biggest annual jump in health care spending will happen in 2014 when health reform is fully implemented.

CMS estimates that in 2014 about 23 million uninsured consumers will gain access to health insurance, mainly through government programs such as Medicaid and through the creation of federal and state-funded health insurance exchanges.

As a result, the government expects Medicaid spending to surge 20% in 2014 and private health insurance spending to increase 9.4%.

Norwalk said the estimated sharp surge in Medicaid spending just in one year, is very concerning given that states are already struggling with their budgets.

As millions more gain access to health insurance, the government expects spending on prescription drugs, physician and hospital services to increase as well.

CMS expects prescription drug spending to jump by 10.7% in 2014 and to account for 11% of national health spending by 2020. Spending on physician and clinical services is forecast to rise by 8.9% by 2014, representing 19% of overall health care spending.

Hospital bills are forecast to account for 30% of overall health care spending by 2020.