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Health Care Costs to Rise Dramatically over Next Decade

February 21, 2007 at 1:50 PM EST
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JIM LEHRER: A government report today estimated that spending appeared to slow slightly from 2005 to 2006, but the longer-range forecast is grim, indeed. Over the next decade, spending is expected to increase at more than double the rate of inflation, topping $4 trillion in 2016.

The report came from the Centers for Medicare and Medicaid Services. And here to go through those numbers and their meanings is our health correspondent, Susan Dentzer.

Now, when I say there was some good news a little bit about 2005, explain what that’s all about.

SUSAN DENTZER, NewsHour Health Correspondent: Well, and you just emphasized the word “slightly,” Jim, and that was appropriate. In 2005, health spending overall for the country grew at a 6.9 percent rate. And in 2006, it’s estimated by CMS, it fell all the way to 6.8 percent, so a tenth of — basically a tenth of a percentage point.

The important point, though, is the second one that you emphasized in that introduction, which is that, going forward, we’re still expecting health spending overall in this country to grow by at least 7 percent or more per year, which is a recipe for health spending doubling over the course of a decade.

And that’s exactly what the report predicted, that by 2016 we’d be at more than $4 trillion in spending versus just over $2 trillion now.

JIM LEHRER: And that, of course, is much higher than the expected inflation rate, so everything — in other words, everything is continuing pretty much the way it’s been going for years now, right?

SUSAN DENTZER: Well, a lot better situation than was the case at the turn of the decade, when we were really seeing health spending going up, in some instances, in double digits rates, and also, in particular, aspects of it, like prescription drug spending, soaring forward at 18 percent a year.

The situation is a lot better now, but a 7 percent steady compound growth rate for a huge sector of the economy is still a big deal, and that’s still what we’re facing.

Growth of prescription drugs

JIM LEHRER: And a big hunk of our entire income in the United States, at all levels, yes. All right, let's go through some of these. You mentioned prescription drugs. What's the reality here, in terms of growth?

SUSAN DENTZER: Well, again, there was some continuing good news -- in quotes -- on prescription drugs, because the rate of spending is lower than it has been.

But what's also interesting is that the spending shifted. Because we brought in the Medicare Part D drug benefit in 2006, a lot of spending that was being undertaken by the elderly out of their own pockets on drugs shifted over into Medicare. By the same token, a lot of spending that was occurring under Medicaid, the program for the low-income and for the disabled and elderly, also shifted over into Medicare.

So we had, amazingly enough, a 22 percent single-year increase in Medicare spending in 2006, just due to the shift of drug spending over into Medicare.

Now, again, the good news is it could have been worse, because private plans managing the drug benefit were able to get some price concessions from drug manufacturers. The spending was a little bit lower than originally it had been projected to be, but still it's a very dramatic increase, and it's expected overall to continue to fuel some drug utilization over the time.

JIM LEHRER: And, of course, the bottom line, of course, is that the reason for this is there are more drug programs available that have -- most drugs are now available to people and they used not to be, prescription drugs.

SUSAN DENTZER: Exactly right. And now it's covered by insurance, so, therefore, people -- there's a greater incentive. And, of course, medicine is moving more in that direction anyway.

Hospital and physician costs

JIM LEHRER: What about hospital costs? How are they going?

SUSAN DENTZER: Hospital costs, also the rate of increase was a little bit lower than it's been in recent years. But, here again, the CMS actuaries and those who put together this study were pretty gloomy about the future.

They noted, for example, that hospitals are undergoing a construction boom across the country, adding new facilities, particularly adding facilities to do things like heart procedures and others that tend to be reimbursed very well under Medicare and other health insurance systems.

So they said, you know, in essence, we're at a little slowdown now, but we're expecting things to get worse in the years ahead.

JIM LEHRER: Physician fees and physician costs?

SUSAN DENTZER: Again, a little bit of a lowering in the rate of growth of physician fees, but mainly due to artificial reasons, specific, in law, Medicare fees to physicians are supposed to be cut right now and will be cut in the future under the formula that Medicare -- that has been adopted.

However, nobody really believes that's going happen. And, politically, Congress in recent years has turned around and paid doctors more, so, again, the CMS people said it looks like it's going to get worse.

Nursing home and insurance costs

JIM LEHRER: What about nursing home costs?

SUSAN DENTZER: Again, a little bit lower rate of growth, in part because of what's going on...

JIM LEHRER: There's growth, but the rate of growth is slowing?

SUSAN DENTZER: The rate of growth, exactly, because states have taken some efforts to stem expenditures under Medicaid, which is where a lot of nursing home expenditures fall. And, because, as the states have tried more and more to push people out of nursing homes, if possible, those rates have come down.

But again, looking forward, the situation is grim. And we should point out that this is all against a backdrop of us understanding that Medicare and Medicaid spending will grow exponentially in the years ahead.

In fact, as the Government Accountability Office, as it's now called, has pointed out to us, if we were paying all of our future Medicare bills today, we'd have to come up with $32 trillion to make good on those promises to pay Medicare bills in the future, so it's a substantial burden.

JIM LEHRER: What about private health insurance costs? What do the figures show about those?

SUSAN DENTZER: Again, a little bit of improvement -- I should say more than a little. Around 2001, we were seeing a 9.6 percent rate of growth in private health insurance premiums, and that came down, or it's estimated to have come down in 2006 to 4.7 percent.

Now, partly, that's because private health insurers raised their prices, they now admit, too fast in the earlier parts of this decade. They were expecting a much worse health care cost trend than we actually got.

So now they're compensating by not raising prices quite as much for this year. But, again, we look at the demographics and other things we know, it's a temporary phenomenon.

A continued increase in cost

JIM LEHRER: The study that you've been talking about does not see any major force at work that will cause generally any of these specific costs -- and, in general, these costs of health care -- to start coming down, correct?

SUSAN DENTZER: That's right, for a lot of reasons: demographics, the aging of the population, the fact that baby boomers like me will soon be cashing in our Medicare and so forth.

And also, because of this phenomenon, for every dollar of health care expenditure in this country, it's a dollar of somebody's health care income. We talk about health care consuming parts of the economy, but it's really producing a big part of the economy, 20 percent, as we see from this study, by the year 2016.

JIM LEHRER: Twenty percent of what?

SUSAN DENTZER: Twenty percent of gross domestic project by the year 2016, according to this projection, will be in health care, all forms of health care spending. So that's a lot of jobs...

JIM LEHRER: That talks about people -- you have jobs, equipment, prescription drugs...

SUSAN DENTZER: Hospital expenses, construction firms building hospitals, all of that, and therein sort of lies our national conundrum. We want to squeeze down on these costs because we're paying so many of these bills out of pocket.

Another part of this study points out that governments at all levels -- state, federal, local -- will be paying half of all health care costs by 2016. So we want to squeeze down on what we all have to pay as taxpayers.

At the same time, we really like health care spending. And by the way, it's producing lots of benefits for our economy. How we work our way out of that one is going to be a tall order.

JIM LEHRER: Yes, indeed, thank you very much again, Susan.

SUSAN DENTZER: Thanks, Jim.