Health Care Spending Rises, But at Historically Low Rate

The United States is in an interesting place economically. With the turnaround in employment that has been occurring since late 2011 due to a large increase in available jobs and a drop in unemployment rates, health care spending is on the rise as individuals with greater incomes expend more of their money on health care needs. At the same time, however, it’s rising at a historically low rate.

Some economists credit most of the improvement to the Affordable Care Act, which was signed into law in 2010. The Congressional Budget Office projected in 2014 that federal spending on major health programs such as Medicare and Medicaid would rise 3 percent in the next 20 years, into 2035. However, that rise is 2 percent lower than the projections from 2009.

Medicare spending is down by 35 percent when compared to spending in 2009. In fact, programs such as Medicare are in such a great place that trust funds for hospital bills will be solvent well into 2030, economists predict. Economists had projected in 2006 that the trust fund would be broke by 2018.

Part of the reason for this slowed health care spending is lower-than-projected interest rates in the future, which means that the federal government may be able to keep growing health care costs in line with overall inflation, thanks to the Affordable Care Act. In fact, hospitals and other providers may see significant gains in productivity and opportunities to restrain costs in other ways.

However, given America’s improving economy and employment rate, health care costs may continue to rise as some analysts predict a 4 percent increase in health care spending from 2013 to 2014. Some believe that an individual’s ability to see a doctor annually for physicals and checkups ultimately will reduce health care spending as unemployment rates continue to drop, and programs such as diabetes management prevent future diseases and hospital visits.

The Affordable Care Act’s major caveat is that it requires all individuals to remain insured or face a fine; likewise, the eligibility for Medicaid has been expanded in many states, which adds thousands if not millions of people to the insured pool. Those now covered by insurance are more likely to seek long-deferred treatment. However, this decline isn’t guaranteed, as baby boomers and older employees begin to retire. In fact, some economists predict that by 2030 — once baby boomers begin to retire and enroll in programs such as Medicaid — health care spending will be the federal government’s biggest expense.

Though the health care spending in the U.S. has risen some due to the Affordable Care Act and programs such as Medicare and Medicaid, health care spending is rising at a historically low rate, and is expected to continue to slow down at a healthy rate over the next 25 years.

"Healthcare Costs" by 401(K) 2012 licensed by CC BY-SA 2.0