Rising Healthcare Costs Outpacing Economic Growth

February 10, 2003 (PLANSPONSOR.com) - Ever escalating healthcare spending is forecast to outpace national economic growth between 2002 and 2012.

National healthcare costs are anticipated to average annual increases of 7.3% in the next 10 years, to reach a total of $3.1 trillion.   With the ballooning costs, healthcare’s piece of the gross domestic product pie is forecast to increase from 14.1% in 2001 to 17.7% in 2012, according to data from the Centers for Medicare & Medicaid Services (CMS) reported by Washington-based legal publisher BNA.

However, 2002 and 2003 are seen bucking the trend.   Following an 8.7% increase in 2001, national health expenditure growth is projected to grow only 8.6% in 2002 and 7.3% in 2003. The slowdown is the result of slower than projected Medicare and private health spending growth, according to the report, Trends:Health Spending Projections For 2002-2012.

Turning to the private sector, annual health care spending growth is projected to slow to 7.4% in 2002 and eventually slow to 6.1% in 2012, after increasing 7.9% in 2001. CMS attributes much of this deceleration to slowing real per capita income growth, an increase in the uninsured population, and increased consumer cost-sharing.

Rising Costs

Looking toward individual components of the bulging healthcare cost, CMS analysts project continued quick growth in Medicaid and hospital spending driving health-spending growth in 2002 and accounting for 27.1% of the overall increase in health spending that year.   However, the study reported that Medicare spending growth is projected to slow in 2002 (5.2%) and 2003 (3%), due mostly to the expiration of many of the provisions set forth in the Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 1999 and the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000, as well as reduced reimbursements to physicians.   Medicare will not remain at the lower levels of growth as Medicare spending is projected to return to higher levels of growth reaching 7.4% in 2012.

Spending for Medicaid grew 10.8% in 2001 and is projected to continue rising 12.1% in 2002. These double-digit increases are due largely to an 8.5% increase in enrollment in 2001 and a 5.8% projected increase in 2002 caused by the nation’s economic slowdown.   The large increases are not forecast to end anytime soon, as Medicaid is expected to grow at more than 8% per year over the entire forecast period, ending in 2012.

Other Spending

Medicare hospital spending grew 7.2% in 2001 and is projected to decelerate to 5.7% in 2002 and 2.9% in 2003.   Standing in contrast, Medicaid hospital spending increased 10.2% in 2001 and is projected to grow 11.9% in 2002.   Comparatively, private hospital spending growth is expected to slow from 7.7% in 2003 to 5% in 2012.

Analysts project a deceleration in spending on prescription drugs. Projections indicate a continued deceleration in prescription drug spending growth from 15.7% in 2001 to 14.3% in 2002 to 9.2% by 2012.   But the decrease in spending will not cut into prescription drug expenditures market share, which are expected to remain the fastest growing sector, reaching 14.5% of total health expenditures by 2012, compared with just 9.9% in 2001.