“National healthcare spending trends are unsustainable in the long term,” President Donald Trump’s budget acknowledges.
An article published earlier this month in the medical policy journal Health Affairs buttresses this simple point. Medical inflation stands to outpace both economic growth and actual inflation. Our spending — government, individual, business, etc. — on healthcare, projected to increase 5.5 percent annually over the next nine years, pushes the total to $5.7 trillion a year by 2026.
That accounts for 19.7 percent of the projected gross domestic product. Put another way, American healthcare spending in 2026 equals the entire size of the 1990 U.S. economy and eclipses the current gross domestic product of every other country not named China. It’s not that we spend more on healthcare than every other country — we spend more on healthcare than every other country, save China, spends on everything.
While growth in spending on private plans slows over the next decade, government programs that promise more coverage, cover more people, and cater to an aging clientele in an aging country fuel the boom in healthcare spending.
“Spending growth in Medicare and Medicaid is a substantial contributor to the faster projected overall growth in national health spending through 2026,” the authors affiliated with the Centers for Medicare and Medicaid Services note. “Over the period, projected increases in the use and intensity of care contribute to rising growth in Medicare per enrollee spending relative to recent nearly historic lows. In addition, Medicare enrollment is expected to continue to reflect the aging of the baby-boom generation into the program.”
Prescription drugs, a healthcare sector heavily subsidized through George W. Bush’s Medicare Part D and deemed an “Essential Health Benefit” through Obamacare, somewhat predictably, given its recent entitlement status preceded Baby Boomers becoming senior citizens, see prices rise faster than any other sector of healthcare.
“Among the largest health care goods and services, prescription drugs are projected to experience the fastest average annual spending growth in 2017–26 (6.3 percent per year),” the Health Affairs article forecasts. “This trend primarily reflects faster anticipated growth in drug prices, which is attributable to a larger share of drug spending being accounted for by specialty drugs over the coming decade.”
Healthcare siphoning off 20 percent of our economy (in 1970, it accounted for about seven percent of GDP) means not only less disposable income on a personal level but greater debt and higher taxes on a governmental level as well. Already, the federal government faces a deficit approaching $1 trillion next year. As healthcare costs inflate and Americans grow older and sicker, we figure to run higher deficits as a result of government assuming a greater responsibility in coverage as a result of the Medicare Part D entitlement program, Obamacare, and other federal programs.
Americans can either make a serious effort to transform healthcare from 20 percent to, say, 12 percent of GDP, or implement a new revenue mechanism, say a value-added tax, to fund our increasing obligations. This either/or may strike most readers as a neither/nor. But in a crisis situation in which the debt eclipses the GDP — a new normal established during the Obama administration last experienced because of World War II, when we needed to defeat the Japanese and the Nazis, and the Great Depression — despite no inherent crisis to explain the unbalanced ledger save for profligacy, we may not enjoy the luxury of choosing our choices. After years of bad habits, people see their options shrinking.
It is not 2026 yet. But it is later than you think.
Hunt Lawrence is a New York-based investor. Daniel Flynn is the author of five books.