Looking to Uncle Sam
As lawmakers squabble, spending on health care continues to grow
Jul 30th 2011 | NEW YORK | from the print edition
POLITICIANS want to lower spending, or at least they say they do. But in all the to-and-fro over raising the debt ceiling, little sensible has been said about lowering spending in the long term. Nothing illuminates this more clearly than health care.
A new report, published in Health Affairs on July 28th, paints a daunting picture. Health spending will rise by 5.8% each year from 2010 to the end of 2020, according to actuaries at the Centres for Medicare and Medicaid Services (CMS). In 2020 health care will account for one-fifth of America’s economy. The federal government will pay for a greater share than ever before.
Hawks have long warned that it would be impossible to curb government spending without curtailing spending on health. Democrats claimed that their health law would lower costs. Barack Obama assembled grey-haired sages to recommend changes to entitlement programmes. Paul Ryan, the Republican chairman of the House Budget Committee, offered his own reforms. And yet spending on health care continues to climb.
Last year the actuaries at CMS projected that health reform would not lower spending, as Democrats hoped. From 2009 to 2019 average annual growth for health spending would be 0.2 percentage points higher with Mr Obama’s health reform than without it. This slight net rise would mask dramatic shifts, the actuaries said. For example, reform’s efforts to contain costs for Medicare, the government programme for the old, would be dwarfed by the expansion of Medicaid, the government programme for the poor.
The actuaries’ newest study estimates that health spending grew little last year, mostly because of the weak economy. The next decade, however, will bring rapid growth. Government spending will be the main driver. Ageing baby-boomers will enroll in Medicare; Medicaid coverage will swell; Washington will subsidise many of those on the new state exchanges. CMS expects Washington’s share of health spending to grow from 27% in 2009 to 31% by 2020. Together with spending by states and cities, the public sector will pay for nearly half of America’s health care.
This is a sobering prediction. However, even this may be an underestimate. The actuaries at CMS assume that only 2m people who now have employer-sponsored insurance will lose it, as companies drop coverage and workers move to exchanges or to Medicaid. But more may make the switch. In June McKinsey, a consultancy, found in a survey that 30% of firms would definitely or probably stop offering insurance after 2014, when the exchanges are in place. On July 25th the National Federation of Independent Business, which represents small firms, published its own survey. If some workers begin to move to exchanges, the report found, 57% of companies would consider dropping insurance completely. If these surveys are borne out in firms’ actions, government spending will be even higher than CMS expects. The debt disaster on August 2nd may be averted. The bigger problem remains.