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Government Health Spending To Top Private Sector By 2012

Feb 04, 2010

In their fight against the Democrats' health overhaul bills, Republicans repeatedly warned of a "government takeover" of health care. However, even if that legislation never passes, government programs will soon finance a majority of the health care market, according to officials at the Centers for Medicare and Medicaid Services (CMS). 

By 2012, government health care expenditures will top private spending for the first time, the report by the CMS actuaries says. The trend is expected to continue, with state, local and federal governments picking up a combined 52 percent of the nation's health tab by 2019, the last year projected by the actuaries. In fact, the percentage of public spending on health care has steadily edged up since the federal government began keeping track of these numbers in 1960.

The report, published today in the journal Health Affairs, highlights the unfettered climb in both overall health spending and the federal government's role in covering America's health expenses. An aging population, the economic recession and ever-increasing use of health services prompted the "sentinel event" – crossing the 50 percent line, said Gail Wilensky, a former director of the Medicare agency.

However, it's no surprise, she said. In recent years public spending growth has steadily outpaced growth on the private side.

Interactive Graphic: Health Spending by Public and Private Sectors

The report is "a reminder of the challenges ahead of us, particularly with regard to the huge, unfunded liability of Medicare, which [suggests] those public sector dollars are likely to grow unless we significantly redesign” the program, said Wilensky, who is now a fellow at Project Hope, the publisher of Health Affairs.

The study also says the nation's health spending as a share of the economy jumped in 2009 by 1.1 points to 17.3 percent, the largest leap yet. The record increase is a combined effect of the economic recession and government efforts to expand public health care programs, such as Medicaid, to soften the recession's blow.

The actuaries anticipate health spending will level out slightly after the next few years, compared to previous estimates. The increased spending related to the recession is expected to taper off next year, and growth in private spending will remain slower than normal because of the residual effects of the economic slump.

The actuaries say they now expect a stronger economic rebound from the ongoing recession than they had anticipated in their report last year. That could mean that the economy is better able to absorb increases in health costs.

Between now and 2019, health spending will grow only 1.7 percentage points faster than the economy. However, that estimate includes a scheduled 21-percent cut to physicians’ Medicare payments this year and smaller cuts in the future that most observers expect will be blocked by Congress. Even so, Christopher Tuffer, an author of the study, said blocking the cut will not make "a huge difference when you look at it as a share of the economy."

In addition, the actuaries dismissed the effects of Congress’ investments in health care through last year's stimulus package, such as health information technology and research that compares treatments to determine which are most effective.

Some economists say they would help lower costs, but Steve Heffler, director of the National Health Statistics Group, which helped provide information for the report, said, "We do not project that any of those provisions… are going to have a noticeable impact on the rate of growth [of health spending]."

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