Government share of health spending soon to near half

U.S. study predicts effect of Medicare overhaul, including drug benefit

February 24, 2005|By Ricardo Alonso-Zaldivar and Joel Havemann | Ricardo Alonso-Zaldivar and Joel Havemann,LOS ANGELES TIMES

WASHINGTON - The introduction of the Medicare prescription drug benefit means that soon the government will be picking up almost half the nation's health care costs, a report released yesterday shows.

And private-sector spending on health care also will increase, according to economists and actuaries for the Centers for Medicare and Medicaid Services.

Writing in the Internet edition of the journal Health Affairs, the economists and actuaries predicted continuing increases in public and private health care spending would lead to "heightened pressure to find ways to slow cost growth without compromising quality of access."

The study measured the projected effect of last year's Medicare overhaul - including the new prescription drug benefit - between 2004 and 2014. The prescription benefit has been estimated to cost $724 billion in its first decade.

In other industrialized democracies, health care programs cover all citizens and are highly subsidized by government. The United States is the only large nation in which private payments exceed government spending on medical care.

According to the new report, that might change in the next decade. By 2014, the authors said, government would account for 49.5 percent of the nation's health spending.

At a news conference yesterday sponsored by the Henry J. Kaiser Family Foundation, Richard Foster, the chief actuary for the Centers for Medicare and Medicaid Services, pointed out that by 2014, only the leading edge of the baby-boom generation will have reached the age of Medicare eligibility.

"In the future, it is almost without doubt that the public share will cross over [50 percent of total spending] and continue to grow for at least 30 years," Foster said.

C. Eugene Steuerle, a senior fellow at the Urban Institute, a nonpartisan economic and social policy organization in Washington, said that if health care spending continues to increase at the rate predicted by the government actuaries, it would very soon place "enormous pressure" on the medical system.

Steuerle and Marilyn Moon, director of the health program at the American Institutes for Research, a behavioral and social science research group in Washington, said they feared the government would respond to the pressure by shifting costs to individuals, who in turn might forgo needed health care.

Dr. Steffie Woolhandler, associate professor of medicine at Harvard University, said in an interview yesterday that the new data confirmed that the United States was paying more for health care and - at least in the case of the 15.6 percent of Americans who were without health insurance in 2003 - getting less.

"We are getting a very bad deal economically in terms of health care in this country," said Woolhandler, a spokeswoman for Physicians for a National Health Program, a nonprofit group that advocates for government-funded health insurance for all citizens.

The government economists and actuaries estimated that the nation's health care bill, $1.8 trillion in 2004, would double to $3.6 trillion by 2014. As a share of the economy, which will grow more slowly during that decade, health care will climb from 15.4 percent in 2004 to 18.7 percent in 2014, they predicted.

Private spending for health care grew faster than public spending in 2003, but the authors estimated that public spending growth overtook private spending growth in 2004. Public spending will be particularly large in 2006, when the Medicare prescription drug benefit begins in earnest, they said.

In that year, they forecast that the public share of the health care bill will leap by 12 percent. But even then, they predict a 3 percent increase in private spending on health care.

Out-of-pocket payments by consumers will dip from $262 billion this year to $258 billion in 2006, they said, but that decline will be more than offset by an increase from $690 billion to $722 billion in costs paid by private health insurance.

At the same time, government's share of the nation's health care bill will rise from $891 billion this year to nearly $1 trillion next year. The federal government will pick up about $725 billion of the 2006 total; state and local governments will pay $275 billion.

Overall spending on prescription drugs, the report predicted, will leap by 11.6 percent in 2006, the first year of the full Medicare prescription drug benefit. But that figure is in line with spending increases in this category in other years of this decade.

An increase in prescription drug use by the elderly would be largely offset by lower prices as private prescription drug plans for Medicare beneficiaries negotiate deals with drug makers.

The Los Angeles Times is a Tribune Publishing newspaper.

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