Health Spending Projections Through 2017: The Baby-Boom Generation Is Coming To Medicare

Abstract

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...

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