the Natural Condition

Health Affairs, a journal dedicated to health policy, published an article today that reports on the forecast for healthcare spending in the US. In 2007, America spent about 16% of its Gross Domestic Product on healthcare. By 2017, that number is expected to rise to about 20% of GDP (a total of about $4.3 trillion). A 4% increase may not seem like much, but it represents a proportional growth that outpaces the adjusted growth for the 2017 GDP. By my calculations, the dollar amount of a 4% increase in healthcare-spending-as-proportion-of-GDP would cost more than current budgets for the Department of Defense, Homeland Security, Education, and Energy, combined.¹ The following chart shows the forecast for this increase:

^{Image courtesy of Health Affairs.}

This growth is equivalent to about a 6.7% increase in health expenditures for each fiscal year from now until 2017. While the majority of the 6.7% annual increase is due to hikes in “medical prices,” no category of health expenditures appears to accelerate faster than any other, as the following graph demonstrates:

^{Image courtesy of Health Affairs.}

So what is the reason for this steady, grueling increase in the cost of healthcare? As I alluded to in a previous NC article — the baby-boomers. According to the Health Affairs article, enrollment in Medicare will increase in the next 10 years as the baby-boomer generation enters retirement. By 2017, Medicare is expected to account for 20% of the total US spending on healthcare.

The United States healthcare system will inevitably undergo a facelift to support its soaring costs, and health policy may prove to be the most important author of revision and revitalization. And, by the way, it’s unlikely that the facelift will be covered by Medicare.

Footnotes:
(1) The 2007 United States GDP was $13,761 billion. The 2007 budgets for the Department of Defense, Homeland Security, Education, and Energy were $439.3, $30.9, $54.4, and $23.6 billion, respectively. 4% of $13,761 is $550.44 billion, which exceeds the sum of the previously listed departmental budgets. This information comes from the FY2007 report from the Office of the President.