Skip to main content

Advanced Search

Advanced Search

Current Filters

Filter your query

Publication Types



Newsletter Article


CMS Projects Increase in Public Sector Contributions to Health Care Spending

February 23, 2005—Spending on public health care programs will account for nearly half of health care spending in 2014, according to estimates released Wednesday by the Centers for Medicare and Medicaid Services.

The CMS report states that health care spending is expected to account for a larger portion of the economy's resources over the next 10 years, with the public sector footing a larger share of the cost. By 2014, it estimates that health care spending will constitute 18.7 percent of the gross domestic product, up from 15.3 percent in 2003.

The CMS analysis, which was published in the journal Health Affairs, was presented Wednesday at a forum on Medicare spending hosted by Health Affairs and the Kaiser Family Foundation.

"These trends will test society's willingness to find ways to slow cost growth without compromising quality or access," said Stephen Heffler, director of the National Health Statistics Group at CMS. Heffler, along with CMS actuaries and economists, prepared the report.

Heffler said this year's predictions are significant because it is the first time that CMS included the effects the Medicare prescription drug benefit will have on health care spending. The Medicare prescription drug benefit begins January 2006 as a part of the new Medicare drug law (PL 108-173).

CMS' projections said the new drug benefit will lead to a "substantial shift" in funding from private payers and Medicaid to Medicare over the next decade, even though the benefit will only have a minor effect on health care spending. National health spending growth is anticipated to remain stable through 2006.

"The implementation of the Part D benefit has very little impact on overall health spending or total prescription drug spending, but it has a significant impact on who is paying for prescription drugs," Heffler said at the forum.

Marilyn Moon, vice president and director of the health program at the American Institutes for Research, said the debate over health care costs should focus on the redistribution of how health care will be funded after the implementation of the drug benefit.

"You want to take a look at these numbers from a different perspective," she said. "Don't just think about the federal budget, think about who is going to be paying. Most individuals don't care if they are paying higher premiums or co-pays, they just know that they are paying more."

CMS Administrator Mark B. McClellan said the new drug law will provide beneficiaries with greater access to drugs and modern medical care without significantly increasing medical cost growth while reducing seniors' out-of-pocket expenses.

"We intend to use the tools provided by the new Medicare law to increase efficiency and get even more for our health care spending," McClellan said in a release.

Other Highlights of the CMS Report

  • Prescription drug spending is expected to continue a slowdown which began in 2000. Prescription drug spending growth is expected to be 11.9 percent in 2004, slowing to 8.7 percent by 2014. The deceleration is due to slower growth in drug prices, greater use of generic drugs, and increased use of multi-tiered co-payments and other steps to managed drug benefit costs.
  • Hospital spending growth is projected to accelerate in 2004 to 7.0 percent, after a slowdown in 2003, when hospital spending growth was 6.5 percent.
  • Home health spending growth is expected to sharply increase to 13.0 percent in 2004 from 9.5 percent in 2003 due to large anticipated increases in Medicare and Medicaid spending.
  • Nursing home spending growth is expected to slightly accelerate to 4.2 percent in 2004 from 4.0 percent in 2003, with a deceleration in private spending and acceleration in public spending.
'A More Balanced Approach'
Separately, members of the Value Group, a coalition of hospital, pharmaceutical, medical device, and other health care companies, are urging CMS to take "a more balanced approach" in their health care spending projections, urging federal officials to "evaluate broader societal and economic benefits beyond the current focus solely on costs."

CMS' annual release on health care spending "does not take into account the return that America receives for its investment in health care," the Value Group argues.

In 2004, the group commissioned a report that found while U.S. health care spending doubled from 1980 to 2000, many improvements occurred. Annual death rates declined 16 percent, life expectancy at birth increased 3.2 years, and the number of disabled seniors declined 2.3 million.

Publication Details