Health-Care Spending To Reach 20% Of Economy by 2021 (Financial Advisor)

Health-Care Spending To Reach 20% Of Economy by 2021

(Bloomberg News via Financial Advisor) An aging population, improving economy and President Barack Obama’s health-care overhaul will push spending on medical services to almost 20 percent of U.S. gross domestic product by 2021, the government projected.

Spending on hospital visits, medications and other health care rose an estimated 3.9 percent in 2011 and consumed about 17.9 percent of GDP, the same as the previous two years, the Centers for Medicare and Medicaid Services said yesterday. The increases in such expenditures will continue to outpace economic growth projections, jumping 7.4 percent in 2014, when much of the insurance expansion created by the health law begins.

With a Supreme Court decision looming this month on the constitutionality of the health law, the Obama administration and Republican opponents have squabbled over whether the measure can trim medical spending while adding more than 30 million people to insurance rolls. The law would add 0.1 percentage point to average annual health spending through 2021, according to an analysis published in the journal Health Affairs.

“The real mystery is, what happens once we get past this projection period, when things have the real potential for spending going way out of control?” said Joe Antos, an adviser to the Congressional Budget Office who works as a health economist at the American Enterprise Institute, a Washington- based research group that advocates for limited government.

Health and Human Services Secretary Kathleen Sebelius said in a blog post that the law “is helping control health costs and expand coverage, and ensure better health and better health care, for all Americans in the next decade and well beyond.”

Glide Path

Chris Jacobs, a health-policy aide to Republican lawmakers on the Joint Economic Committee in Congress, said in an e-mail that the law puts government programs “on a glide path to becoming the majority of all health-care spending.”

Federal, state and local governments are projected to spend $2.4 trillion on health care in 2021, half of all U.S. medical expenditures, according to the analysis in Health Affairs by actuaries and economists from the Centers for Medicare and Medicaid Services. Government accounted for about 46 percent of health spending through 2013.

Increased rebates from drug companies selling to Medicaid patients and limits imposed by the law on insurers’ profits had “little overall impact” on national health spending in 2011, the researchers said. Total U.S. health-care expenditures will surpass $3 trillion in 2014 and reach $4.8 trillion in 2021, according to the government data.

The government researchers may have underestimated growth by assuming that scheduled cuts in Medicare payments to physicians and hospitals aren’t reversed by Congress, said Antos of the American Enterprise Institute.

“That’s too rosy,” he said by telephone.

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Eric is a Producer at Lockton Insurance Brokers, Inc., the world’s largest privately held commercial broker. Eric has over 23 years of experience in the insurance industry and has spent the last 11 years with Lockton. Eric specializes in Health & Welfare Benefits, Retirement Planning, and Executive Benefits. Eric's clients utilize his expertise in the areas of Plan Due Diligence, Transaction Structure, Fiduciary Oversight, Investment Design, Compliance and Vendor negotiation to improve the operational & financial outcome for each client. The Benefit Blog is a place to share that expertise and industry news.
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