The figures show that spending on Medicare and Medicaid will grow at roughly 7% to 8% per year until 2014, when the programs are expected to cover 49% of all U.S. health costs. After that, publicly funded programs will for the first time surpass private insurance as the nation's primary backer of health insurance, the estimates show.
The report also projects that by 2014 health care spending will take up nearly 19% of the gross domestic product, up from 15.3% in 2003. The trends have analysts continuing to question whether the nation can afford to pay for the health care of the retiring baby boom generation without a major reordering of its budget priorities.
Richard Foster, the chief actuary at the federal Centers for Medicare Services, warns that just as the nation will steer more of its economic resources toward health care, consumers too will be forced to spend a growing share of their income for medical services. The trends point to "a long-term financial imbalance" in U.S. health care, he says.
"It's not that hard to speculate beyond 2014 because it has demographics written all over it," Foster says.
Medicare's Drug Plan: Why Did Cost Estimate Rise?
Medicare is set to undergo a major expansion in 2006 when it begins paying part of seniors' prescription drug costs. The program is expected to pay $70 billion for drugs for 39 million beneficiaries next year and $720 billion by 2014, according to White House budget documents released in early February.
But the prescription benefit is expected to have little long-term impact on consumers' out-of-pocket spending for health care. Out-of-pocket spending for prescriptions is expected to dip in 2006, but will then continue rising at an estimated 6% to 7% per year until 2014, the report estimates.
Retail drug prices are expected to drop 15% for Medicare seniors in 2006, though most of the savings for the health system as a whole will be wiped out by higher utilization of prescriptions, Foster says.
The estimate was far beyond the $534 billion prediction put forward by administration actuaries last year and nearly double the $400 billion cost pegged for the prescription benefit when Congress narrowly voted for it in late 2003.
Administration officials stressed that most of the expanded cost estimate owed to an accounting shift that looked at 2013 and 2014, when seniors would spend the most ever on prescription drugs.