Rising Health Care Costs Will Push the Nation’s Debt Into High Risk Territory
Policy + Politics

Rising Health Care Costs Will Push the Nation’s Debt Into High Risk Territory


Last year, health care spending in the U.S. claimed 17.8 percent of the overall economy and held relatively steady. But within the coming decade, health care will consume 20 percent of the overall economy, marking an important turning point for government policy makers.

A new report by the Centers on Medicare and Medicaid Services (CMS) released this week projects a 5.8 percent annual growth rate in health costs between now and 2025. That is a more robust rate than we’ve seen throughout most of the Obama administration that would exceed the overall economic growth rate by 1.3 percentage points.

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Among the reports more salient findings:

  • Health care spending will average in excess of $10,000 a person this year – the highest level ever --and continue to climb.
  • Medicare and Medicaid spending for seniors and low-income people will rev up in the coming decade after something of a lull.
  • Prescription drug prices will continue to increase sharply, especially the pricey specialty drugs.

Moreover, the Great Recession of 2007 to 2009 served as a restraint on health care costs because many people struggling to make ends meet simply put off seeking medical assistance, prescription drugs or elective surgery. But as the economy has gradually improved, more and more Americans have purchased health insurance and sought better and more expensive medical attention.

“The health sector is in the midst of a unique transition, in which various forces are exerting differential pressures on health spending growth,” the report states. “Economy-wide and medical-specific price growth have been very low, helping restrain inflation’s impact on health spending, and the Medicare program is experimenting with various alternative payment approaches.”

At the same time, millions of Americans have gained access to health coverage for the first time through the Affordable Care Act, with nine in ten Americans now enjoying some coverage. Obama administration officials say that the Affordable Care Act not only has extended coverage to many people but has also helped to restrain overall health spending, even though premiums and copayments have gone up in recent years.

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Yet the longer-term trends outlined in the report  suggest mounting pressure on state and federal budgets and the national debt, especially as more and more baby boomers retire and seek health care benefits. “By 2025, as economic, legislative and demographic influences play out, the health spending share of the economy is projected to reach 20.1 percent . . . and governments are anticipated to sponsor 47 percent of health spending, up from 45 percent in 2014,” the report states.

Take the Medicare program for instance. Federal spending on the premier health care program for seniors totaled roughly $647.3 billion in 2015, which was a 4.6-percent increase over the 2014 spending level. 

By 2025, spending on Medicare will skyrocket well beyond that, with roughly one in five Americans enrolled in the program, according to the new report. Currently, about 15 percent of all Americans qualify for the program. Medicare will spend an average of about $18,000 a year for every beneficiary by 2025, compared to about $12,000 in 2015.

As for Medicaid, the federal and state program for lower income and disabled people, spending will average nearly $12,500 per year for enrollees in 2025, or well up from $8,000 last year.

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The new report prepared by health care professionals at the Department of Health and Human Services is a cautionary tale about the long-term challenges to Congress and the White House of meeting the fast growing demands for health care without continuing to drive up the debt.

The Congressional Budget Office on Tuesday issued a warning that the national debt is running ahead of previous projections and might reach an historic 141 percent of the Gross Domestic Product by 2046.

Among the major factors, according to the CBO: Government spending on Social Security, Medicare and other major health care programs to serve an aging population. At the same time, CBO said, health care costs per beneficiary will rise more quickly than the overall growth in the economy.

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Entitlement programs are expected to grow so much within the coming three decades that people over 65 years of age will account for roughly half of all federal spending other than interest on the debt, according to CBO.

And of course, that doesn't include additional programs that might be added in the coming years. Presumptive Democratic presidential nominee Hillary Clinton recently unveiled some new proposals to woo liberal voters, including expanding Medicare to people 55 and over and spending $40 billion more in the coming decade on community-based primary health care centers in hard to reach areas.