The Center for Medicare and Medicaid Services, in new projections released today in Health Affairs, estimates that health spending will more than double to $2.8 trillion by 2011 and climb to more than 17 percent of the GDP over the next decade, up from 13.2 percent currently.
Uwe Reinhardt, Ph.D., James Madison Professor of Political Economy, Princeton University, comments:
$2.8 trillion sounds like an awesome lot; but Americans better get used to the idea. Several factors drive that spending figure:
1. There’s expensive new technology on the horizon, and not all of it is money saving. Much of it enhances the quality of care and life, at greater expense.
2. We are facing a growing labor shortage in health care, and not only in nursing. There is likely to be even a renewed physician shortage. We must get used to paying health workers more.
3. By trashing managed care as they did, Americans have signaled that they do not want to have any cost control at all in health care. They seem willing to spend (more correctly: to have someone else spend) whatever it takes, even on care that is known to be only marginally useful or even useless. Yes, Americans do sincerely believe that, if insured, they have a Constitutional right even to useless care. It’s the American way.
All of these factors spell increased health spending, and I see nothing on the horizon to slow it down, short of seriously rationing health care by ability to pay even for insured Americans (e.g., through MSAs). And even that may not work, because with MSAs the piece of health spending called “catastrophic” would be likely to increase more rapidly.
Even so, there’s a brighter side. We have no cause to jump off a bridge.
According to the CBO, GDP in 2001 was $10.193 trillion. It is projected to be $16.676 trillion in 2011. According to the most recent CMS data, total national health spending in 2001 was $1.378 trillion. It is projected to be $2.8 trillion by 2011. Thus, in 2001 we had (10.193 – 1.378) = $8.815 trillion of non-health GDP left over after the health sector took its slice of 31.2% of the GDP pie. In 2011 we are projected to have (16.676-2.8) = $13.876 trillion of non-health GDP left over. This is an increase of (13.876-8.815) = $5.061 trillion in non-health GDP, or a percentage increase of (5.061/8.815) = 57.4%. It is equivalent to an average annual compound growth rate of 4.6% over the period 2001-2011. That ain’t bad, is it? We can live with it.
I see it in your eyes: you are asking me, “But what about inflation?” Ok, here are the numbers. The CBO projects an average annual increase in the GDP deflator of about 2% over the period 2001-2011. If we deflate the non-health GDP projected for 2011 by that inflation factor, the $13.876 in 2001 dollars projected above becomes $11.383 in constant year-2001 dollars. Thus, in terms of real purchasing power, non-health GDP in 2011 is projected to be (11.383-8.815) = $2.568 trillion more than it was in 2001. This represents an increase in real non-health GDP of 2.568/8.815 = 29%. It is equivalent to an average annual compound increase of 2.589% over the period 2001-2011. Still ain’t bad, is it?
I sense that you are still not happy. You wonder about population growth. “Aren’t there more people to claim all that extra non-health GDP? May there be less per capita, then?” you wonder. Ok–here it goes. Our population is projected to grow at an average annual compound rate of slightly less than 1% (0.9% really). Therefore, we can say that real (constant dollar) non-health spending per capita in the US is projected by the CBO to increase by about 2.589% – 1% = 1.589% per year between 2001 and 2011 (1.6% between friends). That ain’t bad either, is it?
Can we really look up to God and cry over it? Can we tell God that, in view of the looming $2.8 trillion in health spending in 2001, we cannot possibly give the elderly prescription drug coverage or extend health insurance coverage to all uninsured Americans, because that would spend us into the poorhouse?
My conjecture is that God won’t be impressed, nor will President Bush’s most highly regarded philosopher: Jesus Christ. I think we had better do the Judeo-Christian thing vis a vis the uninsured, lest there be locusts and frogs and stuff all over the country, as once it was in Egypt.
Kip Sullivan responds to Uwe Reinhardt:
Uwe Reinhardt’s previous statement:
<< By trashing managed care as they did, Americans have signaled that they do not want to have any cost control at all in health care. They seem willing to spend (more correctly: to have someone else spend) whatever it takes, even on care that is known to be only marginally useful or even useless. Yes, Americans do sincerely believe that, if insured, they have a Constitutional right even to useless care. It's the American way. >>
Kip Sullivan’s response:
Uwe,
I agree with your demand that Congress insure the uninsured. But I disagree with the remarks above about Americans’ attitudes toward managed care. These remarks rest on two assumptions: (1) That managed care has been demonstrated to cut national health care expenditures or, at minimum, total health spending by the private sector, and (2) that managed care cuts out only “useless care,” not necessary care, and, therefore, has not damaged quality of care.
You didn’t articulate these assumptions, so I’m asking you if you endorse those assumptions. Do you? If you say yes, I will challenge you on both of them. I believe the evidence supports the following conclusions:
(1)(a) the evidence that managed care saved money for the private sector is inconclusive; (b) the evidence indicates permitting managed care companies to enroll Medicare beneficiaries has added to, rather than reduced, Medicare’s costs; and
(2) the evidence supports the conclusion that the spread of managed care damaged quality of care.
These are complex issues, and I’m pressed for time these days, so I might take awhile responding to you. But I think these issues are too important, and your view too incorrect, to let your comment go by unquestioned.
Thanks much.
Kip Sullivan
Uwe Reinhardt responds to Kip Sullivan:
The original remarks are reproduced, and Dr. Reinhardt’s additional comments are marked ***
Kip Sullivan responds to Uwe Reinhardt:
Uwe Reinhardt’s previous statement:
<< By trashing managed care as they did, Americans have signaled that they do not want to have any cost control at all in health care. They seem willing to spend (more correctly: to have someone else spend) whatever it takes, even on care that is known to be only marginally useful or even useless. Yes, Americans do sincerely believe that, if insured, they have a Constitutional right even to useless care. It's the American way. >>
Kip Sullivan’s response:
Uwe,
I agree with your demand that Congress insure the uninsured. But I disagree with the remarks above about Americans’ attitudes toward managed care. These remarks rest on two assumptions: (1) That managed care has been demonstrated to cut national health care expenditures or, at minimum, total health spending by the private sector, and (2) that managed care cuts out only “useless care,” not necessary care, and, therefore, has not damaged quality of care.
You didn’t articulate these assumptions, so I’m asking you if you endorse those assumptions. Do you? If you say yes, I will challenge you on both of them. I believe the evidence supports the following conclusions:
(1)(a) the evidence that managed care saved money for the private sector is inconclusive;
*** What, then, is your explanation for the deceleration of the growth in health spending during the 1990s?
(b) the evidence indicates permitting managed care companies to enroll Medicare beneficiaries has added to, rather than reduced, Medicare’s costs; and
*** I can buy that. it also, of course, has added benefits. If you don’t believe me, ask the elderly. Why else would they whine when they have to go back to Medicare?
(2) the evidence supports the conclusion that the spread of managed care damaged quality of care.
*** I don’t buy that one.
These are complex issues, and I’m pressed for time these days, so I might take awhile responding to you. But I think these issues are too important, and your view too incorrect, to let your comment go by unquestioned.
Thanks much.
Kip Sullivan