Balancing the Federal Budget: Health Care

Health Care Spending: Medicare and Medicaid – The Problem

Health care spending has increased dramatically from 5% of GDP in 1960 to 17.4% in 201322. Centers for Medicare & Medicaid Services projects that the United States will be spending more than 20% of GDP on health care by 202517.  Medicare and Medicaid spending increased dramatically in the last decade. What was the cause of this growth and is it sustainable?

2006 ($ in billions)
2016 ($ in billions)
Change (%)
Medicare spending
$376.8
$691.6
83%
Medicaid spending
$180.6
$376.8
108%


Some might point to the Affordable Care Act as a factor, which was signed into law by President Obama on March 23, 201011. Let’s take a look at the outlays for Medicare and Medicaid from 1996-2016.

Medicare
Medicaid
Total
Medicare  (% increase)
Medicaid               (% increase)
Total        (% increase)
Average / Decade (% increase)
1996
191.3
92.0
283.3
1997
207.9
95.6
303.4
8.65%
3.87%
7.10%
7.04%
1998
211.0
101.2
312.2
1.50%
5.95%
2.90%
1999
209.3
108.0
317.3
-0.82%
6.73%
1.63%
2000
216.0
117.9
333.9
3.23%
9.14%
5.25%
2001
237.9
129.4
367.2
10.11%
9.71%
9.97%
2002
253.7
147.5
401.2
6.65%
14.02%
9.25%
2003
274.2
160.7
434.8
8.07%
8.94%
8.39%
2004
297.0
176.2
473.3
8.35%
9.67%
8.84%
2005
335.1
181.7
516.8
12.82%
3.11%
9.21%
2006
376.8
180.6
557.4
12.44%
-0.60%
7.86%
2007
436.1
190.6
626.7
15.74%
5.54%
12.43%
6.74%
2008
456.0
201.4
657.4
4.56%
5.67%
4.89%
2009
499.9
250.9
750.8
9.63%
24.57%
14.21%
2010
520.5
272.8
793.3
4.11%
8.71%
5.65%
2011
559.6
275.0
834.6
7.52%
0.80%
5.21%
2012
551.2
250.5
801.7
-1.52%
-8.88%
-3.94%
2013
585.2
265.4
850.6
6.18%
5.93%
6.10%
2014
599.8
301.5
901.3
2.49%
13.59%
5.96%
2015
634.1
349.8
983.9
5.72%
16.02%
9.16%
2016
691.6
368.3
1,059.9
9.07%
5.29%
7.73%
In billions of dollars

It would appear that the cost of Medicare and Medicaid actually slowed in the last decade. So what exactly are the contributing factors to these rising costs?

Coverage Expansion

More people have access to Medicare and Medicaid supported programs in part due to the Affordable Care Act. An estimated 20 million people12. What about the addition of people needing healthcare services in the U.S. general population? The U.S. census’ taken in 1990 and 2010 show an increase of more than 60 million such people, bringing the U.S. population to 308,745,538 in 201013,14.

Age and Health of the General Population

In 2011, the first of the baby boomers began to hit age 65, nearly 10,000 of them each day15. This marks the beginning of a substantial growth in the U.S. population over the age of 65. It’s estimated that the number of people in this category will increase from 43.1 million in 2012 to 83.7 million by 205016.

According to the Centers for Medicare & Medicaid services, “per person personal health care spending for the 65 and older population was $18,988 in 2012, over 5 times higher than spending per child ($3,552) and approximately 3 times the spending per working-age person ($6,632)”17.

A large portion of the American population is aging, but an even greater number are becoming obese. From 1999 to 2014, the percent of adults classified as obese rose from 30 to 37.7%18. During the same period, youth obesity increased from 13.9 to 17.2%18. Obesity has been shown to lead to a host of costly health problems.

The number of US adults over the age of 18 are suffering from epidemic levels of diabetes. “From 1980 to 2012, the number of adults with diagnosed diabetes in the United States nearly quadrupled, from 5.5 million to 21.3 million…if this trend continues, as many as 1 out of every 3 adults in the United States could have diabetes by 2050”19,20. The estimated direct and indirect costs of diabetes in the United States was estimated to be $245 billion for 201220.

Put simply, we have a large portion of the population who are aging and an even larger portion who are becoming obese and suffering from costly ailments.

Waste

An article published by the Harvard Business Review identifies several key areas of wasteful spending in health care21.

wasteful-spending-healthcare

Health Care Spending: Medicare and Medicaid – Potential Solutions

Universal Health Care – A Single Payer System.

A proposal by a 39 member working group proposes a government-funded National Health Program, which would eliminate the need for privatized for-profit insurance companies23. The NHP would provide funding for hospitals and other health care offices all over the United States and negotiate drug and supply prices directly with manufacturers23. Direct funding from the government would eliminate fee-for-service practices, except where physicians opt to be paid on such a basis, “but with fees adjusted to better reward primary care providers, or by salaries in facilities paid by global budgets”23.

Senator Bernie Sanders of Vermont has proposed a similar plan for government-funded coverage for all Americans, which would be purported to save $6 trillion over a ten year period24. This plan is expected to cost about $1.38 trillion per year. Funds to pay for such a system would be raised through:

  • 6.2% income-based health care premium paid by employers
  • 2.2% income-based premium paid by households
  • Progressive income tax bracket for Americans making more than $250,000/year
  • Taxing capital gains and dividends in a fashion similar to income from work
  • Limiting tax deductions for the rich
  • A Responsible Estate Tax affecting the wealthiest 0.3% of Americans
  • Savings from health tax expenditures currently subsidizing health care24

Projected Effects:

  • Increased health care coverage for all Americans.
  • Decrease in expenses of up to $600 billion per year.

Increase spending on preventative health care including birth control and redistribute agricultural subsidies toward low-input, high-output localized, urban, and vertical farming operations. Clarify priorities for the USDA29.

Projected Effects:

  • Decrease in annual healthcare spending of $3.7 billion25.
  • Increased worker health, eliminating up to $260 billion in lost worker productivity due to health problems26.
  • Reduction in health care spending of up to $1.32 billion by preventing unintended pregnancies27.
  • Increased access to affordable, fresh, local foods resulting in decrease of $17 billion in health care costs from heart disease treatments alone28.
  • Focus of the USDA on establishing realistic and factual food standards and directing farmers and food distributors accordingly.

Trimming existing waste21. Eliminating duplicative or unnecessary services, simplifying overly-complex administrative systems, implementing process improvement practices, and reforming demand and supply practices and policies.

cuttingwaste-healthcare

Potential Effects:

  • Streamlined healthcare processes.
  • Reduction in cumulative healthcare spending of up to $1 trillion.

 

Next on the list is Non-Defense spending, which includes a wide array of spending categories like health care, energy, funding of the government itself, and international efforts.

References

10 Congressional Budget Office. 2017. Historical Budget Data.

11 U.S. Department of Health & Human Services. 2015. Read the Law.

12 U.S. Department of Health & Human Services. 2016. 20 million people have gained health insurance coverage because of the Affordable Care Act, new estimates show.

13 United States Census Bureau. 1992. 1990 Census of Population: General Population Characteristics.

14 United States Census Bureau. 2010. Interactive Population Map.

15 Pew Research Center. 2010. Baby Boomers Retire.

16 Ortman, Velkoff. 2014. An Aging Nation: The Older Population in the United States.

17 Centers for Medicare & Medicaid Services. 2015. NHE Fact Sheet.

18 Ogden, Carroll, Fryar, Flegal. 2015. Prevalence of Obesity Among Adults and Youth: United States, 2011-2014.

19 Centers for Disease Control and Prevention. 2015. Diabetes Report Card 2014.

20 Centers for Disease Control and Prevention. 2014. National Diabetes Statistics Report: Estimates of Diabetes and Its burden in the United States, 2014.

21 Sahni, Chigurupati, Kocher, Cutler. 2015. How the U.S. Can Reduce Waste in Health Care Spending by $1 Trillion.

22 Catlin, Cowan. 2015. History of Health Spending in the United States, 1960-2013.

23 Gaffney, Himmelstein, Woolhandler, Angell, et al. 2016. Beyond the Affordable Care Act: A Physicians’ Proposal for Single-Payer Health Care Reform.

24 Medicare for All: Leaving No One Behind.

25 Maciosek, Coffield, Flottemesch, Edwards, Solberg. 2010. Greater Use of Preventative Services in U.S. Health Care Could Save Lives At Little Or No Cost.

26 Centers for Disease Control and Prevention. Preventative Health Care.

27 Rovner. 2012. How Birth Control Saves Taxpayers Money.

28 Union of Concerned Scientists. 2013. Investing in Healthy Food Will Save Lives and Dollars.

29 International Business Times. 2011. Conflict of Interest in USDA Nutrition Guidelines, Doctors Say.

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