Analysts: Health Care Costs to Keep Rising

By Kevin Freking
The Associated Press

Tuesday 21 February 2006

Washington - Within a decade, an aging America will spend one of every five dollars on health care, according to government analysts who see no end to increases in the cost of going to the doctor and taking medicine.

The nation's total health care bill by 2015: more than $4 trillion. Consumers will foot about half the bill, the government the rest.

Hospital costs will rise more quickly than previously anticipated, reflecting a construction boom for urban hospitals. Meanwhile, drug costs are expected to be lower because of a greater reliance on generics, and because insurers administering the new Medicare drug benefit were able to negotiate steeper discounts than previously anticipated.

The projections, published in the journal Health Affairs, come as President Bush urges Americans to confront the rising cost of health care. In his State of the Union address last month, the president pushed health savings accounts, or HSAs, and the high-deductible insurance plans that go with them.

The administration predicts that Americans would become more thrifty consumers if they had to pay more of the upfront costs, which occurs with health savings accounts.

"We don't expect HSAs to proliferate so dramatically that we would have an impact similar to that of the managed care era of the '90s," said John Poisal, deputy director of the Centers for Medicare and Medicaid Services' National Health Statistics Group. Then, health care flattened out at 13 percent of gross domestic product.

Overall, the analysts forecast a 7.2 percent annual increase in health care costs over the coming decade. That's in line with the 7.4 percent increase in 2005.

Still, the overall economy is projected to grow at a rate of only 5.1 percent over the coming decade, which means health care will play an ever-growing role.

"These changes could force payers and providers to re-examine fundamental questions regarding the delivery and financing of health care services," the analysts said.

Another trend within the new government projections is an ever-growing reliance on the government to foot the bill for health care. By the end of the next decade, the government will pay for about half of the nation's medical costs.

Overall, the most important factor in health care spending is income, the analysts said. As Americans make more money, they spend more to get healthy. People making $90,000 are more likely to visit a doctor and get their prescriptions filled than those who make $50,000, Poisal said.

Investment in research, equipment and people also drives the growth in health care spending, he said.

"It's consumption and investment," Poisal said. "But primarily it's about consumption."

Medicare spending will more than double, from $309 billion in 2004 to $792 billion, in 2015. Medicaid spending will grow from $293 billion to $670 billion during the same time span.

The country's aging population is expected to drive increases in two key areas of health care spending: nursing homes and home health.

Spending on nursing homes will grow from $121.7 billion in 2005 to $216.8 billion in 2015. Home health will grow from about $49 billion last year to $103.7 billion in 2015. It represents the nation's fastest-growing sector in health care.

Analysts expect annual health cost increases in the next decade to range from 6.8 percent in 2015 to 7.7 percent in 2008.