U.S. health care spending will increase by an average of 7.2% annually until 2015, when spending will reach $4 trillion and account for 20% of the gross domestic product, according to a report released on Tuesday by the National Health Statistics Group at CMS, the Los Angeles Times reports (Girion/Alonso-Zaldivar, Los Angeles Times, 2/22). NHSG Deputy Director John Poisal said, "We can expect to have slight drops (in health care spending) in 2006 and 2007, followed by a slight bump up in 2008 and then a gradual growth after that" (Higgins, Washington Times, 2/22). The report, a Health Affairs Web exclusive, estimates that public and private health care spending will reach about $12,320 per capita in 2015, compared with $6,683 in 2005 (Pugh, Miami Herald, 2/22). In addition, the report estimates that health care spending increased by 7.4% in 2005, compared with 7.9% in 2004 (Corbett Dooren, Dow Jones, 2/22).

Prescription Drug Spending
The report, which does not account for recently enacted fiscal year 2006 budget reconciliation bill that will affect Medicare and Medicaid spending, also estimates that prescription drug spending will increase by an average of 8.2% annually until 2015, a lower rate of increase than in recent years (Lueck, Wall Street Journal, 2/22). According to the report, prescription drug spending will reach $446 billion in 2015, compared with $188 billion in 2004 (Dow Jones, 2/22). The report attributes the lower rate of increase in prescription drug spending in recent years in part to decreased use of medications, increased copayments for individuals with private health insurance and additional restrictions implemented by employers. The new Medicare prescription drug benefit likely will not lead to new spending on medications because rebates and discounts offered by pharmaceutical companies are larger than expected, according to the report (Wall Street Journal, 2/22).

Medicare, Medicaid Spending
According to the report, Medicare spending will increase by 25.2% in 2006, in large part because of the launch of the prescription drug benefit, which will shift some drug expenses from the private sector to Medicare. The report also estimates that Medicare spending will increase by 5.4% in 2007 and by an average of 7.5% annually between 2008 and 2015 (Dow Jones, 2/22). Medicare spending will reach $792 billion in 2015, compared with $309 billion in 2004, according to the report (Freking, AP/Long Island Newsday, 2/22). The report also estimates a lower rate of increase in Medicaid spending in 2006 because of the shift of some prescription drug costs to Medicare. However, the report estimates that Medicaid spending will increase by an average of 8.6% annually between 2008 and 2015 (Dow Jones, 2/22). According to the report, Medicaid spending will reach $670 billion in 2015, compared with $293 billion in 2004 (AP/Long Island Newsday, 2/22).

Additional Results
The report also finds:

• Hospital spending increased by 7.9% in 2005 and will double by 2015.
  
  
• Private health insurance spending increased by 6.8% in 2005, compared with 8.4% in 2004.
  
  
• Nursing home spending increased by 5.6% in 2005, compared with 4.3% in 2004 (Dow Jones, 2/22). Nursing home spending will increase from $121.7 billion in 2005 to $216.8 billion in 2015 (AP/Long Island Newsday, 2/22).
  
  
• Home health spending increased by 13.2% in 2005 to almost $49 billion (Dow Jones, 2/22). Home health spending will reach $103.7 billion in 2015 (AP/Long Island Newsday, 2/22).

Effect of HSAs, Disease Management Programs
The report states that the "net impact" of health savings accounts and disease management programs on "cost containment is likely to be far smaller than that seen from the massive shift toward managed care during the mid-1990s" (Appleby, USA Today, 2/22). Poisal said, "We don't expect HSAs to proliferate so dramatically that we would have an impact similar to that of the managed care era of the '90s." The report also states that increased health care spending "could force payers and providers to re-examine fundamental questions regarding the delivery and financing of health care services" (AP/Long Island Newsday, 2/22).

Reaction
Paul Ginsburg, president of the Center for Studying Health System Change, said, "When spending on health care goes up faster than earnings, lower-paid people are priced out of the health insurance market" (Miami Herald, 2/22). Ginsburg also said that the report was "optimistic" because the authors are "only following current laws on the books, which means they assume there will be continued physician payment cuts in Medicare," adding, "But people don't expect that to happen" (Washington Times, 2/22). Paul Fronstin, an economist at the Employee Benefit Research Institute, said, "It's hard to see where we will see sustained savings" in health care (Los Angeles Times, 2/22). Stephen Heffler, director of NHSG, said that the short-term estimates in the report are "relatively accurate," although the long-term estimates could change as a result of potential revisions to the law or the state of the economy. In addition, Heffler cited the Medicare prescription drug benefit as the "poster child of difficulty" for long-term estimates (Washington Times, 2/22).

The report is available online.

In addition, Larry Levitt, vice president of the Kaiser Family Foundation and editor-in-chief of kaisernetwork.org, talks to report authors Poisal and Christine Borger, an economist with the National Health Statistics Group. The interview is available online.