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Health Care Costs To Account For One-Fifth Of U.S. Economy By 2020: Report

RICARDO ALONSO-ZALDIVAR   07/28/11 11:17 AM ET  AP

WASHINGTON — The nation's health care tab is on track to hit $4.6 trillion in 2020, accounting for about $1 of every $5 in the economy, government number crunchers estimate in a report released Thursday.

How much is that? Including government and private money, health care spending in 2020 will average $13,710 for every man, woman and child, says Medicare's Office of the Actuary.

Compare it to this year, when U.S. health care spending is projected to top $2.7 trillion, about $8,650 per capita, or roughly $1 of $6 in the economy. Most of those dollars go to provide care for the sickest people.

Along with rising costs, the report found that the share of the health care tab paid by the government keeps growing, approaching half the total.

The update from Medicare economists and statisticians is an annual barometer of a trend that many experts say is unsustainable, but doesn't seem to be slowing. A political compromise over the nation's debt and deficits might succeed in tapping the brakes on health care, but polarized lawmakers have been unable to deliver a deal.

The analysis found that President Barack Obama's health care overhaul would only be a modest contributor to growing costs, even though an additional 30 million otherwise uninsured people stand to gain coverage.

Instead, health care spending keeps growing faster than the economy because of high cost of medical innovations and an aging society that consumes increasing levels of service.

Many of the newly insured people under the health care law will be younger and healthier, so they cost less. Over a million young adults under age 26 have already gained coverage through their parents' insurance. Millions more will get insurance when the law's big coverage expansion kicks off in 2014.

That year, health care spending will jump by 8 percent. But over the 2010-2020 period covered by the estimate, the average yearly growth in spending will be only 0.1 percentage point higher than without Obama's overhaul. Most of the newly insured are not expected to require much pricey hospital care, generally needing only doctor visits and prescription drugs.

Another reason for the optimistic prognosis is that cuts and cost controls in the health care law start to bite down late in the decade. However, the same nonpartisan Medicare experts who produced Thursday's estimate have previously questioned whether that austerity will be politically sustainable. If hospitals and other providers start going out of business, Congress may reverse the cuts.

The report found that health care spending in 2010 grew at a historically low rate of 3.9 percent, partly because of the sluggish economy. That will change as the economy shakes off the lingering effects of the recession.

Government, already the dominant player because of Medicare and Medicaid, will become even more important. By 2020, federal, state and local government health care spending will account for just under half the total tab, up from 45 percent currently. As the health care law's coverage expansion takes effect, "health care financing is anticipated to further shift toward governments," the report said.

Estimates from previous years had projected that the government share would already be at the 50 percent mark, but the actuary's office changed its method for making the complex calculations. Under the previous approach, some private payments such as worker's compensation insurance had been counted in the government column.

Technical accuracy – not political pressure – was behind that change, said one of the experts who works on the estimates. "This was an internal decision that was not influenced by any outside party," said Stephen Heffler.

Separately, another new report finds that the United States continues to spend far more on health care than other economically developed countries. The study by the Commonwealth Fund found that U.S. health care spending per person in 2008 was more than double the median – or midpoint_ for other leading economies. Although survival rates for some cancers were higher in the U.S., the report found that quality of care overall was not markedly better.

The Medicare actuary's report on health care spending is published in the journal Health Affairs. The actuary's office is responsible for long-range cost estimates.

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On the Internet:

Health Affairs: www.healthaffairs.org

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Filed by Maxwell Strachan  |