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Health spending outpaces economy

Expected Medicare pay cut would reduce growth in payments for physician services next year, government economists say.

By Joel B. Finkelstein, amednews staff. March 14, 2005.

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Washington -- Although future health care spending growth is expected to be significantly slower than it has been in the past decade, some experts still describe current trends as unsustainable.

Health spending is estimated to have hit $1.8 trillion in 2004, according to a recent report by actuaries and economists at the Centers for Medicare & Medicaid Services, published online by Health Affairs. That represents slower growth than 2003, 7.5% compared with 7.7%. But that rate still outpaced expansion in the overall economy, which was 6.5%.

Economists expect the trend to continue. As a result, health spending is projected to grow from 15.4% of the gross domestic product in 2004 to 18.7% in 2014.

As the chunk of the national economy swallowed by health spending increases, lawmakers might be forced to act to hold down costs, some analysts predicted.

"The way we've organized insurance, government and private, is really in the very long term unsustainable," said economist C. Eugene Steuerle, PhD, a senior fellow at the Urban Institute. "This cost growth is putting enormous pressures on the system that I think have to play out, and will play out long before the 2014 numbers you see that the actuaries put forward here."

But CMS officials note that their calculations are based on the assumption that there is no change in the law that would affect how the government pays for health care.

"Our projections of health care costs for the future are uncertain," said Rick Foster, CMS' chief actuary. "We like to think we do a pretty good job at this, but we also recognize that the crystal ball we use is fairly fallible."