U.S. Health Spending to Climb 5.8% a Year Through 2025

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The nation’s healthcare bill this year is expected to surpass $10,000 per person for the first time, the government said. The new peak means the Obama administration will pass the problem of high healthcare costs on to its successor.

The report from statisticians at the Department of Health and Human Services projects that healthcare spending will grow at a faster rate than the national economy over the coming decade. That squeezes the ability of federal and state governments, not to mention employers and average citizens, to pay.

Growth is projected to average 5.8% from 2015 to 2025, below the pace before the 2007-2009 economic recession but faster than in recent years that saw healthcare spending moving in step with modest economic growth. National health expenditures will hit $3.35 trillion this year, which works out to $10,345 for every man, woman and child.

The annual increase of 4.8% for 2016 is lower than the forecast for the rest of the decade. A stronger economy, faster growth in medical prices and an aging population are driving the trend. Medicare and Medicaid are expected to grow more rapidly than private insurance as the baby-boom generation ages. By 2025, government at all levels will account for nearly half of healthcare spending (47%).

The report also projects that the share of Americans with health insurance will remain above 90%, assuming that President Barack Obama’s law survives continued Republican attacks. The analysis serves as a reality check for the major political parties as they prepare for their presidential conventions.

Usually in a national election there are sweeping differences between Democrats and Republicans on health care, one of the chief contributors to the government’s budget problems. But this time the discussion has been narrowly focused on the fate of Obama’s law and little else.

Republican Donald Trump promises to repeal “Obamacare,” while saying he won’t cut Medicare or have people “dying in the street.” Democrat Hillary Clinton has promised to expand government healthcare benefits. Both candidates would authorize Medicare to negotiate prescription drug prices, which the report says will grow somewhat more slowly after recent sharp increases.

The $10,345-per-person spending figure is an average; it doesn’t mean that every individual spends that much in the healthcare system. In fact, U.S. healthcare spending is wildly uneven. About 5% of the population–those most frail or ill–accounts for nearly half the spending in a given year, according to a separate government study.

Meanwhile, half the population has little or no healthcare costs, accounting for 3% of spending. Of the total $3.35 trillion spending projected this year, hospital care accounts for the largest share, about 32%. Doctors and other clinicians account for nearly 20%. Prescription drugs bought through pharmacies account for about 10%. (Source: Health Affairs)

Steve’s Take: To no one’s surprise, the above report from the Department of Health and Human Services says that our healthcare spending will grow at a faster rate than the national economy over the coming decade. For 2016, our healthcare spending is expected to reach $10,345 per person.

Under such statistical circumstances, it doesn’t take a doctoral degree to figure out that our ability to provide for the healthcare needs of all of us at current levels will eventually become unsustainable.

But as another report indicates, about 5% of the U.S. population, namely, the sickest of us, accounts for half of all healthcare spending in a given year. Looking a little closer, of the total $3.35 trillion projected to be spent this year, hospital care accounts for nearly a third, or $1.12 trillion–by far the largest share.

Unlike Europe and Canada (and elsewhere, of course), we in the U.S. have long been fixated on keeping our oldest and sickest citizens alive as long as medically possible. As the above report points out, of the $3.35 trillion projected to be spent on healthcare in 2016, half, or $1.68 billion, will be accounted for by our sickest 5 percent.

So let’s take the United Kingdom as an example of how to face the financing of an older, sicker portion of their total population. Yes the “Brexit” is expected to result in a recession in the UK, with the National Health Service (NHS) expecting to face a growing shortage of primary care physicians and nurses. But how have they been able to keep their sickest citizens out of the hospital, where care is the costliest?

One of the biggest differences (if not the biggest) between them and us is their “social care provision.” The NHS is seeking to recruit 100,000 social-care workers to continue to manage chronically ill and elderly patients outside hospital settings.

This is considered a critical aspect of healthcare transition as the UK seeks to reduce the spending on secondary care, which accounts for 78% of the total health budget. Spending on primary and long-term care in the UK currently accounts for around 22% of the total health budget–a full 10% less than here in the States. Most of the social workers are recruited from the EU, and the Brexit is expected to guarantee continued vacancies for social care jobs.

If here in the U.S. we were able to reduce our portion of the total annual hospital bill to around 22%–like in the UK–we could shift approximately $883 billion either to our uninsured or to secondary care, or both.

The transition would require recruiting a massive army of social care workers to care for our chronically ill and elderly. It may even require recruiting large numbers of such social workers from other countries. With our national immigration policy the subject of a political football game in Washington, the benefits to the adequate funding of our future healthcare spending needs could help contribute to a more rational view of both issues.

I realize that in the current “let’s build a wall” mentality in some quarters, recruiting social care workers from other countries would have little or no prospect. But with the passage of time, given the healthcare financing realities we face now and in the future, we may have no choice but to eventually adopt a more pragmatic approach to immigration that successfully balances the risks and benefits. No easy task, for certain.