A significant shift in health care funding from the private to the public
sector is projected over the next 10 years, in part because of the new
Medicare prescription drug benefit.
By 2014, the public sector will fund more than 49 percent of all U.S.
health care, said Stephen Heffler, director of the National Health Statistics
Group at the Centers for Medicare and Medicaid Services, and colleagues in a
Health Affairs Web exclusive posted February 28.
"The implementation of the Part D [prescription drug] benefit, as
well as the expected continuation of the longer-term trends toward more public
funding of health care, leads us to anticipate the public sector will pay for
nearly half of all spending in the U.S. by 2014," said Heffler during a
Webcast briefing on the projections.
Heffler said the shift would happen as the leading edge of baby boomers
become eligible for Medicare in 2011. He emphasized, however, that the shift
in public spending is not related to demographic trends.
"The larger demographic impact of that cohort [becoming eligible for
Medicare] is during the years following this set of projections,"
Rather, the increased public funding of U.S. health care is related to a
variety of trends that are shifting spending away from the private sector,
including the new Medicare drug benefit.
As an illustration of the drug benefit's contribution to increased public
spending, total Medicare drug spending is expected to be $69.9 billion in 2006
when the benefit begins. But without the drug benefit and other drug-related
provisions, Medicare prescription drug spending would have been projected to
be just $2.9 billion in
"This shift of approximately $67 billion in funding on behalf of the
projected 38.9 million enrollees in the Medicare Part D benefit comes from the
two primary payers of prescription drugs in 2005—Medicaid and private
payers," the authors wrote.
While the drug benefit is helping to shift the source of financing toward
the public sector and away from the private sector, it is not expected to
contribute to increases in overall spending. In part, this is because
increased utilization resulting from the benefit is expected to be offset by
price discounts also associated with the benefit.
In fact, the authors said that the growth in overall U.S. health care
spending over the next 10 years is actually expected to decelerate, due to
reductions in medical consumption. These reductions are expected to be
achieved as a result of what the authors call the "quiet reimposition of
selected tools of utilization management, such as preauthorization
requirements and utilization review and the increased use of cost sharing to
dampen demand for discretionary services under private health
Yet despite this deceleration in growth, overall health care spending will
continue growing faster than gross domestic product (GDP). "The
consequence is a projected increase in health's share of GDP from 15.3 percent
in 2003 to 18.7 percent by 2014," the authors projected.