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National Institute for Health Insurance Reform

One little guy - one big goal - fix a broken system. mailto:rereason@hotmail.com

Wednesday, June 01, 2005

Doing the Math - Part One

If present trends continue, healthcare spending will consume 100% of the gross domestic product in 37 years. Of course, present trends will cannot continue, but suppose they do.

As you probably know, "Gross Domestic Product" is the economics term for the value of all the goods and services produced by an economy. Historically, GDP grows by around 2.9% annually in the United States.

In 2003, the value of the GDP was about $10,881.6 billion. Of that, about 15.3%, or $1,664.88 billion was spent on direct purchase of healthcare.

I recently had reason to delve deeply into the budget of Sedgwick County, Kansas. They project growth of healthcare expenses at 12% annually.

Assuming a healthy growth of 3.5% in the GDP, in ten years it becomes a staggering $12,067.95 billion. If healthcare costs grow as fast as some projections would have it, it becomes $6,486.33 billion, or over half of the GDP.

With a 12% annual growth, healthcare costs exceed the GDP $16,059.92 billion to $15,891.19 in the year 2023. Math is fun.

Will this happen? Of course not. But consider this. According to figures published by the government’s Center for Medicare Services (CMS)healthcare costs have increased by a factor of 40 since 1960. Healthcare costs rose at an annual rate of 11% from 1960 through 1999. The projected increased (at 12% annually) over the next 18 years is less than a factor of 10.

Consider also; the baby boom generation is only now entering the peak years for healthcare needs.

According to the Organization for Economic Co-operation and Development (OECD), health spending in the United States grew at a rate 2.3 times faster than the GDP from 1997 to 2002. That would be an annual growth rate of 8.05%. Growth in the GDP for 2002 was 2.9%. Using these historically accurate figures moves the year in which health costs consume one-half the GDP to 2022, and the year in which health costs exceed GDP moves to 2037.

And they say Social Security is in crises.

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