Medicare News

Health care spending in the United States is projected to reach $2.8 trillion in 2011, up from $1.3 trillion in 2000, according to a report by the Centers for Medicare & Medicaid Services (CMS).

The CMS report, published today in the journal Health Affairs, projects that for the entire 2001-2011 period, health spending is expected to grow at an average annual rate of 7.3 percent.

As a percentage of Gross Domestic Product (GDP), health care spending is expected to reach 17 percent in 2011, up from 13.2 percent in 2000. The bulk of this increase comes in the first two years of the projection period due in large part to expectations of continued slow economic growth.

Health care spending is expected to grow by 9.6 percent in 2001, a marked acceleration from the 6.9 percent growth in 2000, the last year for which there is historical data. A year ago, growth for 2001 had been projected to be 8.6 percent. The revised faster projection reflects largely one-time increases in expenditures for Medicare due to recent legislation and faster Medicaid growth.

Private spending for health care is expected to grow 8.9 percent in 2001 and peak at 9.4 percent for 2002, compared to 6.9 percent in 2000. This acceleration reflects the lagged effect of recent rising household incomes, a shift to less restrictive forms of managed care, and rising price inflation due to the weaker influence of selective contracting.

After 2002, private spending growth is expected to decline gradually to 5.9 percent by 2011, reflecting the projected slower per capita real income growth, a revival of more restrictive forms of managed care, a rise in the uninsured population, and an increase in the use of consumer cost sharing.

For 2002-2011, public health spending is anticipated to grow at an average annual rate of 7.3 percent. Following an initial sharp acceleration in 2001, Medicare and Medicaid spending are expected to moderate greatly. By 2003, annual Medicare spending growth is expected to fall 5.5 percentage points to 4 percent, and annual Medicaid spending growth is expected to fall 3.5 percentage points to 7.8 percent.

Out-of-pocket costs are expected to fall to 14.1 percent of total personal health care spending in 2011, down from 14.8 percent in 2001. As employers continue to shift costs to employees and the uninsured population rises, these declines are expected to be much slower than experienced during the 1990s.

The growth in prescription drug spending is expected to decelerate from 17.3 percent in 2000 to 10.1 percent for 2011. However, prescription drugs will still remain the fastest growing health sector, nearly doubling its share of health care spending during this period.

Reasons for this projected deceleration include weaker disposable income from a slowing economy, a declining impact of direct-to-consumer advertising resulting from few introductions of "blockbuster" drugs over the next several years, and insurers and employers continued move towards coverage with incentives to use lower-cost drugs.

Near-term hospital spending growth is projected to accelerate more rapidly than projected last year, as recent data suggests that costs and utilization are rising faster than expected. The report now projects an increase in hospital spending of 8.3 percent for 2001, up from 5.1 percent in 2000. The increase reflects increased Medicare spending in 2001 and in private spending through 2002.

Nursing home spending is projected to accelerate more sharply than previously anticipated in 2001, as the Medicare, Medicaid and SCHIP Benefits Improvement and Protection Act of 2000 (BIPA) dramatically added to projected Medicare spending. The expiration of some of these BIPA provisions is expected to cause a sharp drop-off in growth in 2003. Overall, total nursing home expenditure growth is expected to average 5.5 percent per year during 2001-2011.

Government public health spending growth is also expected to increase sharply in 2001 and 2002, reaching 16 percent in 2002. These projections are significantly faster than those projected last year, mainly because of funding increases required to upgrade the public health system to defend against bioterrorism.

The health care spending projection data can be found on the CMS web site at www.hcfa.gov/stats/NHE-Proj/.