Trend of Health Care Cost Increase Will Continue

February 22, 2006 ( - The Centers for Medicare and Medicaid Services have said in a report that, within a decade, $1 out of every $5 spent in the US economy will go for health care, with annual spending consistently growing faster than the overall economy.

USA Today reports that The Centers’ report projects increased spending on hospital care, home health services, drugs and public health programs will help push total health care spending from its current 16.2% of the economy to 20% in 2015.

“In the near term, it’s a plus … a steady source of jobs and income,” says Mark Zandi, chief economist at Moody’s, in the news report. “In the longer term, it’s an increasing amount of economic resources going to a part of the economy that may not enhance underlying productivity.” Zandi pointed out that manufacturing makes up 20% of the total economy now, by comparison.

Economist Paul Ginsburg of the Center for Studying Health System Change also pointed out that rising health care spending can also push more people into the ranks of the uninsured, according to USA Today.

The Centers’ report, published in the Journal of Health Affairs, also said that:

  • The nation will spend $4 trillion on health care – or about $12,320 per person annually – by 2015.
  • Hurricanes Rita and Katrina sharply increased government spending on public health. Federal public health program spending rose 24.3% to $11.3 billion in 2005, compared with 5.7% in 2004, with disaster relief the primary cause.
  • The federal government’s share of prescription drug spending will rise sharply, from 2% last year to 27% this year as the new Medicare drug program takes over payments from state Medicaid programs and from seniors who formerly bought their own.
  • Private insurance premiums rose 6.8% in 2005, well below the most recent peak in 2002, when premiums shot up 11.5%. That slowdown is expected to end by 2007, when premiums will rise faster.

While the report said that cost-control measures, such as health savings accounts and disease management programs are not likely to make much difference in the rising cost of health care, some experts believe these and other measures can help reign in costs for employers who sponsor health care plans (See Feature: HEALTH CARE: Roping in Health Care).