US healthcare spending to nearly double by 2017

According to a recent article (see below), US healthcare spending will be skyrocking in the years to come. Given the difficulties in making coverage decions, I suppose managed care organizations will increasingly request solid economic value propositions of new products seeking formulary listing...

February 26, 2008
US healthcare spending to nearly double by 2017
by Alison Fischer

A report by economists at the US Centers for Medicare and Medicaid Services forecast that healthcare spending in the US will nearly double over the next decade to $4.3 trillion in 2017. The findings were published Tuesday in the journal Health Affairs.
According to the report, healthcare spending will grow by an annual rate of about 6.7 percent through 2017, outpacing annual economic growth of 4.9 percent. The increase in healthcare spending will be due in part to higher prices for drugs and an ageing population who will be seeking treatment for chronic diseases such as high blood pressure and diabetes, the report authors indicated. Furthermore, prescription drug spending over the next decade is expected to more than double to $515.7 billion from the projected $231.3 billion in 2007.
Commenting on the news, Miller Tabak's Les Funtleyder noted that "the growth rates are staggering, when you compare it to inflation." Study author Sean Keehan added that "healthcare is expected to consume an expanding share of the US economy over the next decade, meaning policy makers, insurers, and the public collectively face some difficult decisions about the way healthcare is delivered and paid for."


Jaro Wex Wechowski said...
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Jaro Wex Wechowski said...

The authors of the report mention two main causes of the increase in spending, one of them being higher drug prices. But prices also incorporate innovation, while the unit price of individual products typically decreases with life cycle. If the increase is not due to pure price inflation, then from the economic point of view, the only issue could be increasing burden for the public financing (Medicare, Medicaid). If, however, we look at private spending (most health plans), then a simple thought experiment can show us how absurd the fear of excessive spending on health can be.

We can envisage an economy with, say, 90% of GDP going into health care. Yes, hospitals, drugs, doctors' and nurses' wages, diagnostics, rehab, counselling, etc. If there is demand, the supply for such services will only be a reflection of patients' preferences. Of course, those patients themselves would have to work while consuming healthcare. Most conditions allow many types of productive work and for most treatments people do not even need to be hospitalized. The productive work would be mostly health related, as this is where demand would be: caring, counselling, provision and processing of information, marketing of health services, counting costs of health services etc. In our thought experiment people would be both consumers and producers of health care services. True, they will be fewer products and services of the non-health types, but since the demand would be mostly for health... So, healthcare spending is not a burden to economy, it IS part of the economy. Sounds Orwellian? Who is to decide what people should spend their money on, some kind of Big Brother? The TV Big Brother show itself could actually revolve aroung health issues and the setting could be... hospital. Increase in spending on health in and of itself is by no means a threat to economy per se. If anything, allocative efficiency is an issue, but this is a issue for health economics to handle.

Jaro Wex Wechowski
Pharmarchitecture Limited
Camberley, UK