Health spending takes rising share of U.S. economy

WASHINGTON (Reuters) - Health spending will hit $2.5 trillion this year, devouring 17.6 percent of the economy, as the White House and Congress consider major changes to the healthcare system, U.S. government economists said on Tuesday.

Beds lie empty in the emergency room of Tulane University Hospital in New Orleans February 14, 2006. REUTERS/Lee Celano

The Centers for Medicare and Medicaid Services, known as CMS, forecast that the share of the economy devoted to health spending will jump a full percentage point from 2008. That would mark the biggest one-year increase recorded since the government began tracking the data in 1960.

Thanks to the recession, public health spending in programs such as the Medicaid program for the poor is ballooning, while private health insurance spending is slowing as more people lose employer-provided coverage, CMS reported.

“We project that the health share of the economy will increase steadily through 2018,” CMS economist Christopher Truffer told reporters.

The unbridled growth in projected health spending may add impetus to plans by President Barack Obama and leading lawmakers to make sweeping changes in the healthcare system.

The United States spends more on healthcare than any other country, but its system is widely considered inefficient and it lags many other nations in key quality measures. Past efforts to make major healthcare changes have died in Congress.

The rate of increase in overall health spending -- public and private combined -- was estimated at 6.1 percent in 2008, the same as the previous year, but is projected to slow to 5.5 percent this year due to the effects of the recession.

The report forecast that 2009’s increase in private health spending would slip to a 15-year low of 3.9 percent.

Overall U.S. health spending in 2009 will hit $2.5 trillion, continuing a trend in recent decades that has seen healthcare encompass an ever-larger proportion of the economy, CMS said.

By 2018, U.S. health spending will almost double from last year’s sum, soaring to $4.4 trillion and making up 20.3 percent of the overall economy, the economists reported in the journal Health Affairs.

Growth in public health spending this year is projected to hit 7.4 percent, amounting to $1.2 trillion, largely due to growth in Medicaid enrollment and spending, the report said.

The current recession began in December 2007 and the report forecast economic conditions would improve beginning in 2010. Health spending growth is projected to surge anew in 2011.

Private health spending growth will leap from 4.2 percent in 2010 to 6.1 percent by 2018, CMS said. Public health spending will surge in the same time frame as the post World War II baby boom generation begins entering the Medicare health insurance program for people ages 65 and up, CMS added.

Public spending was forecast to account for more than half of health spending by 2016 and reach 51.3 percent by 2018.

The report saw slower growth in prescription drug spending, down to 3.5 percent last year from 4.9 percent in 2007. CMS economist Andrea Sisko attributed this to the recession, saying the economic squeeze is making people less apt to fill their prescriptions and more willing to use cheaper generic drugs.

Editing by Maggie Fox and David Storey