The economic recession and rising unemployment-plus changing demographics and baby boomers aging into Medicare-are among the factors expected to influence health spending during 2009-2019. In 2009 the health share of gross domestic product (GDP) is expected to have increased 1.1 percentage points to 17.3 percent-the largest single-year increase since 1960. Average public spending growth rates for hospital, physician and clinical services, and prescription drugs are expected to exceed private spending growth in the first four years of the projections. As a result, public spending is projected to account for more than half of all U.S. health care spending by 2012.

Growth in national health spending is projected to slow in 2005 to 7.4 percent, from a peak of 9.1 percent in 2002. Private health insurance premiums are projected to slow to 6.6 percent in 2005, with a rebound expected in 2007. The introduction of Medicare Part D drug coverage in 2006 produces a dramatic shift in spending across payers but has little net effect on aggregate spending growth. Health spending is expected to consistently outpace gross domestic product (GDP) over the coming decade, accounting for 20 percent of GDP by 2015.

ABSTRACT:The outlook for national health spending calls for continued steady growth.Spending growth is projected to be 6.7 percent in 2007, similar to its rate in 2006. Average annual growth over the projection period is expected to be 6.7 percent. Slower growth in private spending toward the end of the period is expected to be offset by stronger growth in public spending. The health share of gross domestic product (GDP) is expected to increase to 16. N at i o na l h e a lt h s p e n di n g is expected to grow 6.7 percent in 2007 and reach $2.2 trillion. Over the projection period in this paper (2007)(2008)(2009)(2010)(2011)(2012)(2013)(2014)(2015)(2016)(2017), growth is anticipated to remain steady at around 6.7 percent per year, yielding an estimated $4.3 trillion in health spending in 2017 (Exhibits 1 and 2). Average annual growth for 2005-2016 is 0.2 percentage point lower than projected previously, mostly due to the expectation of slower medical price growth. 1 Gross domestic product (GDP) growth is expected to average 4.7 percent per year over the projection period. Therefore, health spending growth is expected to outpace economic growth by an average of 1.9 percentage points annually. Although this difference in growth rates is larger than was observed in 2004, 2005, and 2006 (averaging 0.3 percentage point), it is lower than the average difference of 2.7 percentage points over the past thirty years.2 The differential growth rates are expected to result in a health share of GDP of 16.3 percent in 2007 and 19.5 percent by 2017-nearly one-fifth of the economy (Exhibit 3).Divergent spending trends in public and private payers' spending, as well as in spending for specific services and goods, underlie the stable outlook for overall growth in national health spending. Although we expect acceleration through 2009 attributable to higher use, private spending growth is expected to decel-T r e n d s erate through the end of the projection period from 6.6 percent in 2009 to 5.9 percent by 2017. Growth in public spending, on the other hand, is expected to accelerate toward the end of the projection period as the leading edge of the baby-boom generation becomes eligible for w 1 4 6 2 6 F e b r u a r y 2 0 0 8 H e a l t h T r a c k i n g Medicare. From the sectoral perspective, prescription drug spending growth is projected to decelerate in 2007, driven by slower price growth, but is expected to accelerate through 2017 as utilization increases. On the other hand, hospital spending is expected to accelerate in 2007 because of higher Medicaid payment rates and then to decelerate toward the end of the projection period in a lagged response to projected lower growth in income.Medicare Part D is expected to have little impact on overall health spending growth dur- ing the projection period. Per capita prescription drug spending growth is assumed to be identical for Medicare beneficiaries and for the population as a whole. 3 However, Medicare Part D enrollment growth is expected to increase at a faster rate than populati...

National health spending growth is anticipated to remain stable at just over 7.0 percent through 2006, the result of diverging public- and private-sector spending trends. The faster public-sector spending growth is exemplified by the introduction of the new Medicare drug benefit in 2006. While this benefit is anticipated to have only a minor impact on overall health spending, it will result in a significant shift in funding from private payers and Medicaid to Medicare. By 2014, total health spending is projected to constitute 18.7 percent of gross domestic product, from 15.3 percent in 2003.

The rate of growth in national health expenditures is projected to fall to 7.8 percent in 2003 because of slower private and public spending growth. However, during the next ten years health spending growth is expected to outpace economic growth. As a result, the health share of gross domestic product (GDP) is projected to increase from 14.9 percent in 2002 to 18.4 percent in 2013. The recently passed Medicare drug benefit legislation (not included in these projections) is not anticipated to have a large impact on overall national health spending, but it can be expected to cause sizable shifts in payment sources.