Issue: May 2006
May 01, 2006
4 min read

Health care spending expected to outpace U.S. economy in next decade

Private insurance premium growth has slowed temporarily; Medicare premiums expected to peak in 2009.

Issue: May 2006
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Health care spending is expected to grow faster than the overall U.S. economy in the next decade, increasing from 16.2% of the economy currently to an expected 20% of the gross domestic product (GDP) by 2015, according to a recent Health Affairs study.

Over the next 10 years, annual health care spending is expected to grow an average of 7.2%, 2.1% faster than the U.S. gross domestic product (GDP). Based on the new estimates, the U.S. will spend about $4 trillion on health care, or about $12,320 per person annually.

Private insurance premium increases are expected to accelerate in 2007, but slow for the rest of the period. Growth of Medicare premiums and benefits are expected to slow temporarily this year, but are also expected to accelerate in 2007 as plan use increases. Medicare premium growth is expected to peak at 8.3% in 2009, according to the study.

Health savings accounts

Researchers also expect health savings accounts (HSAs) and other consumer-driven health plans (CDHPs) to grow rapidly. In 2005, only 1% of all covered employees had HSAs. But such plans are expected to gain popularity only among young, healthy consumers, Kathleen Stoll, director of health policy at Families USA, a non-profit organization.

“Only people who are young and healthy will want to go for the slight savings in premiums and risk having to spend more money out of pocket to get through the significantly higher deductible if they do not need health care,” Stoll told Orthopedics Today, noting only those with high-deductible health plans may open HSAs.

Stoll also voiced concern that high-deductible plans may drive up the costs of comprehensive, low-deductible plans for the older or less healthy consumer. “The very people who most need good health insurance coverage will end up paying more for it, as the youngest, healthiest people leave the insurance pool for lower-deductible products,” she said.

Proponents believe HSAs encourage consumers to be more cost-conscious when seeking health care. President George W. Bush proposed letting Americans with HSAs, and their employers, make HSA contributions to cover all out-of-pocket costs, not just deductibles as the current law allows.

Three states — Florida, South Carolina and West Virginia — plan to include HSAs in their Medicaid programs. The programs are expected to spur the use of low-cost preventive services and care options, such as generic drugs. The proposals represent three philosophies: reforms designed to stem Medicaid spending growth; incentives for using preventive services; and a culture of “personal responsibility” or “ownership,” according to a Robert Wood Johnson Foundation study.

Stoll voiced skepticism about marrying Medicaid and HSAs. “There are significant flaws with HSAs for any consumer, but I find them particularly troubling when you’re dealing with the low-income population and the severely disabled and elderly populations served by Medicaid programs,” she said.

Shifting costs

The states’ plans would shift costs to low-income recipients and limit state Medicaid spending, Stoll noted. “[It’s] really about saving state money and limiting what the state will have to spend on patients — even if those patients do not get the basic health care they need.”

Robust foreign competition and rising health care costs are forcing struggling General Motors (GM) and auto parts maker Delphi to offer early retirement with large one-time payments, the Washington Post reported.

GM, Delphi and the United Auto Workers union made an agreement under which 24,000 unionized Delphi workers may retire early or move to jobs at GM. About 13,000 Delphi workers may opt for early retirement with benefits. Workers with more than 30 years’ service may leave with a one-time $35,000 payout, and another 5000 employees may choose to work at GM for current salaries, health care and pension benefits. Also, Delphi proposed cutting salaries by more than half, possibly down to a $9.50 hourly rate, the Post reported.

Stuart Hirsch, MD

Hourly GM workers with 10 or more years’ of seniority may retire and receive a one-time payment of $140,000. They would keep their pensions, but lose health care and other retirement benefits. Workers with less than 10 years’ service may leave the company with a one-time payment of $70,000, the Post reported.

Stuart Hirsch, MD, a member of the Orthopedics Today Editorial Board, noted that automakers formerly offered generous retirement packages, but did not have a “full appreciation” of how competition, economics and costs would affect benefits.

“Predicting the future is something nobody has ever been good at,” Hirsch said. “We’re not being critical. They didn’t adequately see the future trends, but probably nobody else did either.”

Hirsch predicted “piecemeal solutions” to factors producing high health care costs.

“What most of us would like would be a consistent, wise, accessible quality system that served all of the components,” he said. “We would love to see the economies of quality care produce lower costs, but that is probably not likely to occur at any time in the near future.”

Hirsch called for “wise caution” about overhauling the health care system. The concept of “quality care” is hard to identify, measure and meld with current practices, all of which make for slow change, he said.

For more information:

  • Borger C, Smith S, Truffer C., et al. Health spending projections through 2015: changes on the horizon. Health Affairs. 2006;25:61-73.
  • Milligan C, Woodcock C, Burton A. Turning Medicaid beneficiaries into purchasers of health care: critical success factors for Medicaid consumer-directed health purchasing. AcademyHealth/State Coverage Initiatives, an initiative of the Robert Wood Johnson Foundation: Available at: