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Health costs to nearly double in a decade

The total will reach $4.1-trillion in 2016, outpacing economic growth, experts say.

February 21, 2007|Ricardo Alonso-Zaldivar | Times Staff Writer

WASHINGTON — Healthcare spending in the United States will nearly double over the next decade to $4.1 trillion in 2016, government economists said today, prompting concern that Americans cannot keep paying for cost increases that outstrip the growth of the economy.

The healthcare bill will average $12,782 for every man, woman and child in 2016, an increase from $7,498 this year, said the report, published online by the policy journal Health Affairs. Healthcare costs will account for nearly 20 cents out of every dollar Americans spend in 2016, up from about 16 cents today.

And by 2016 -- even before most baby boomers retire and become Medicare recipients -- federal, state and local government will be picking up nearly half the national healthcare tab, putting pressure on Congress to curb benefits, raise taxes or both.

"This is really the key issue for the fiscal future of the nation," said Robert L. Bixby, executive director of the Concord Coalition, a private group that promotes reducing the federal deficit. "If healthcare costs continue to drift up -- unless you dramatically raise taxes -- you will have healthcare pushing out everything else government does. Nobody can say exactly when you reach a point that it's unsustainable, but you can look at something and say it's unlikely."

The report by the government's Centers for Medicare and Medicaid Services follows a recent private study concluding that the United States spends far more on healthcare than other advanced countries, with no measurably better result.

Even after adjusting for greater disposable income here, the report by the McKinsey Global Institute, a private economic think tank, found that costs in the U.S. were $1,645 per person higher than in countries such as the United Kingdom and Germany. It attributed the excess costs to higher administrative expenses, drug prices, doctors' incomes and other factors.

"Most components of the U.S. healthcare system are economically distorted," the report said, adding that "no single factor is ... the silver bullet for reform."

The new federal cost report, prepared by government statisticians, deliberately steered clear of policy recommendations. But its authors warned of a growing possibility "that we will have to make important sacrifices to pay for healthcare" and a need for "constant assessment of the value we associate with our healthcare investment."

Core healthcare costs such as hospital care and doctors' services are expected to rise at relatively modest rates of 6% to 7% a year over the coming decade, the report found. The problem, according to the authors, is that those rates are 1 to 2 percentage points higher than the growth forecast for the overall economy.

"That is a very significant point," said Ron Pollack, executive director of Families USA, an advocacy group that supports coverage for the nearly 47 million people in America who are uninsured. "As healthcare spending increases faster than earnings, it means more and more people will find healthcare unaffordable and join the ranks of the uninsured and underinsured."

The report also marks the first time that such long-range cost estimates take into account the Medicare prescription benefit launched last year. The benefit is administered through private insurers -- a feature that many Democrats consider wasteful, arguing that Medicare could get lower prices by negotiating directly with drug companies.

The report's verdict on the drug benefit was mixed.

Overall, it found that the private plans had done a good job of obtaining discounts from manufacturers, helping hold down spending growth even as more seniors were buying medications. But it also found that Medicare's discounts are not as deep as those available under the Medicaid program, which does not rely on private intermediaries.

More significantly, the report found that the Medicare drug benefit has led to a dramatic shift in who pays the bill for drugs. Government is now picking up about 40% of the national tab, compared with 28% in 2005, before the benefit went into effect. That could become a problem because the prescription program lacks its own stable source of long-term financing.

"As the nation moves from more traditional sources of insurance

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ricardo.alonso-zaldivar@latimes.com

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