Alarming Health Care Spending Forecasts as Percentage of GDP

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The Centers for Medicare and Medicaid Services (CMS) has projected that the current number of uninsured people is expected to decrease. The actuary report signaled that there will also be a faster health care spending growth rate ahead as coverage expands and as the economy improves. Our issue is not so much the 2013 to 2015 time period, but the outlook for the 2016 to 2023 time period which will be under another Administration’s watch.

The crux of the matter is that Affordable Care just isn’t looking affordable to the nation as a whole in the years ahead. At issue is that in less than ten years, America is destined to have roughly one-in-five dollars of Gross Domestic Product spent on health care. And that staggering figure is assuming growth rate projections that may be far higher than what the future may ultimately bring.

For 2014, the health care spending growth rate is expected to be 5.6% with another 9 million Americans being forecast to gain health insurance coverage via Medicaid or health insurance exchanges. There is expected to be a miniscule ‘out of pocket’ spending decline, but that is where the good news stops.

National health expenditures are now projected to grow at an average rate of 5.7% in the years 2013 through 2023. This is about 1.1 percentage points faster than the expected average annual growth rate for GDP. By 2023, health care spending financed by Federal, State, and local governments are projected to account for 48% of national health care spending — versus 44% in 2012’s of national health spending.

Health care spending is projected to have grown by 4.7% from 2013 to 2015. From 2016 to 2023 is when healthcare spending will become a real issue and larger burden. Health care spending is expected to grow 6.1% per year from 2016 to 2023 — in part due to faster increases in both disposable personal income and private health insurance enrollment from improved economic conditions; and GDP growth is projected to be 5.3% in 2018.

The CMS model expects health expenditure growth to have lag, with a projected peak in the health spending growth rate of 6.6% in 2020. Also, Medicare spending growth is projected to accelerate to a high of 7.9% in 2020 as a result of continued enrollment in Medicare by the Baby-Boomers along with faster per beneficiary spending growth as this population ages.

One question needs to be asked here — what happens if, or when, GDP growth comes up short or if we enter into another recession? The larger issue is that the health share of total GDP is expected to rise from 17.2% in 2012 to 19.3% in 2023. Again, what if GDP doesn’t live to its growth projections?

While these growth rates are being projected to be lower than the 7.2% spending growth rate from the 1990 to 2008 period, the problem America is facing is that the nation has reached a point where the numbers simply represent too large of a portion of the pie.