CMS: Expect to see one in five dollars spent on healthcare by 2015

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The healthcare costs scenario doesn’t seem to be getting any brighter, at least not according to recently released data from the National Health Statistics Group within the Centers for Medicare and Medicaid Services (CMS). In the groups annual projection, published in Health Affairs last week, by 2015 one in five dollars will be spent on healthcare as spending will rise to $4 trillion.

What’s more, health spending will grow faster than the gross domestic product (GDP) over the coming decade, increasing from 16 percent to 20 percent. On average the prediction is that healthcare spending growth will be 7.2 percent over the next ten years (this would be 2.1 percent quicker than the GDP), though a touch slower than in recent estimates from previous years, CMS said.

Several factors are influencing the rise in spending, including aging baby boomers, fewer people insured by health insurance, and the health insurance dynamic and types of coverage are changing. Health Savings Accounts – one of the things the Bush Administration has pushed as a possible solution to the rise in costs – has some federal analysts skeptic that it will provoke any major change in healthcare spending.

Overall hospital spending growth was projected at 7.9 percent in 2005, but will go up sharply by 2015 to a whopping $1.2 trillion which is twice what was seen last year. 2006 will likely see higher spending, CMS said, due partly to effects of hospital construction. Interestingly, hospital spending will actually likely exceed 2005 levels of personal healthcare spending and then stay at the same level over the next 10 years.

Though hospital spending is expected to be up from last year’s predictions, spending on drugs is actually expected to be somewhat slower largely due to changes in the Medicare Part D drug benefit. The prescription drug plan started in January in an effort to aid nearly 42 million people who struggle to afford drugs.

"The prescription drug plans were able to negotiate discounts and rebates that came in larger than we thought, and this has helped mitigate what drug spending would have been," said John Poisal, deputy director of the CMS' health statistics group. "It doesn't mean drug spending won't continue to grow, but it has helped to temper that growth."
    
The study makes predictions for a number of specific areas of healthcare, including:

  • Medicare expenditures have been predicted to go up by 25 percent in 2006, then level out to an average 7.5 percent growth between 2008 and 2015;
  • Medicaid spending is expected to average 8.6 percent growth each year starting 2008 to 2015 as the total rises to $670 billion;
  • Government (state, local, and federal) spending on publish health soared by 10.5 percent in 2005, which is double what was seen in 2004 – and analysts believe the cause is in part due to hurricanes Katrina and Rita. Overall, federal public health spending is believed to have gone up 24.3 percent in 2005 over 2004, rising to $11.3 billion;
  • Though private health insurance costs have slowed in recent years, in 2005 they saw 6.8 percent growth. Disappointingly, CMS expects that premiums might grow by as much as 8.3 percent starting in 2009 due to changes in insurance underwriting;
  • CMS researchers predict that by 2015, spending on physician costs will be near $850 billion, which is up from $430 billion in 2005; and
  • Out-of-pocket spending was predicted to drop by 1 percent in 2006 after staying at 5.6 percent growth in 2005, as has been seen in recent years. Consumers are predicted to be spending $421 billion by 2015, up from $248.8 billion in 2005.

There are some that believe that the idea that healthcare costs are rising is somewhat of a misconception. Costs can even be seen to have diminished in some cases, but spending itself is going up due to our aging population, heath services improvements, and a rise in visits to specialists.
   
David Silverstein, CEO of Breakthrough Management Group (BMG), states in a report called Healthcare Costs - The Real Story, “over the past 30 years, there has been a steady decline in visits to general and family practitioners, but a 60 percent increase in visits to specialists.”

Regarding the specific type of spending by our aging population, Silverstein suggests that “It’s been said that up to 80 percent of our healthcare dollars are spent trying to prolong the last 20 years of our lives. Then it should come as no surprise that more money is being spent on healthcare by the 34 million Americans