US Health Costs Could Triple by the Year 2000

WILL Americans be three times healthier in 10 years? Probably not. However, national health expenditures could triple by the year 2000. The United States spent a record $500 billion on health care in 1987, a 9.8 percent increase over the 1986 level and nearly 12 times the amount spent in 1965, according to the latest available statistics. Federal, state, and local governments picked up $207 billion of the health-expense tab, with 70 percent ($145 billion) of the total coming from Uncle Sam.

Per capita health spending reached a level of $1,987 in 1987, nearly 10 times the per capita spending in 1965. Since 1975, tax funds have provided about 42 cents of every dollar spent on the nation's sharply rising health bills. In 1965, taxes furnished only 26 cents. The tremendous tax burden caused by government health costs shows no signs of abating.

To get a clear picture of how enormous our health outlays have become, consider that health costs have nearly doubled as a percentage of gross national product, from 5.9 percent of GNP in 1965 to 11.1 percent in 1987 - higher than any other industrial nation. Unfortunately, this will still not be enough!

The Health Care Financing Administration (HCFA) projects health expenditures will reach $1.5 trillion by the year 2000 - a whopping 15 percent of GNP or $5,551 for every man, woman, and child. Federal health spending has grown much faster than medical spending generally. In 1987, private health spending was nine times its 1965 level and state/local spending was 11 times greater, but federal spending grew 26-fold during this same period. Publicly funded health programs today claim 15 cents of every government tax dollar, as opposed to only 6 cents in 1965.

Despite initiatives in the 1980s to restrain public health costs, budget cuts and cost control measures have had only a limited effect. Medicare and Medicaid are the engines driving the sharp growth of government health costs. These two largest government health programs, enacted by Congress in 1965, now account for 28 percent of the total health care bill for all Americans. Medicare alone has become the country's largest purchaser of health-care services. The federal Medicare program, which now serves over 33 million elderly and disabled Americans, is projected to cost more than social security and national defense combined within 25 years.

In 1983, Congress helped slow down the growth rate in Part A Medicare by imposing a system of paying preset amounts for specified ailments and clamping down on annual inflation adjustments. However, Part B costs (primarily physicians' services) have increased eightfold since 1975. Three-quarters of Part B spending comes from the federal treasury. Under current law, the other 25 percent must come from monthly premiums withheld from beneficiaries' social security checks. With Part B spending rising at nearly 17 percent annually, there has been a sharp increase in both the monthly premium ($110 per year in 1980, $335 in 1989) and in the cost to the federal treasury ($94.9 billion in FY1990, $143.3 billion in FY1994).

The Medicare Catastrophic Coverage Act (MCCA) signed into law on July 1, 1988, represents the largest expansion of the Medicare program in its 24-year history. This program was repealed this month by House legislation, but may survive in some form in Senate legislation. The benefits contained in the act, estimated to cost about $31 billion between 1988 and 1993, are to be paid for by those eligible for the program whether or not they have private supplemental insurance coverage.

Many tax analysts consider the new supplemental premium to be a poorly disguised progressive tax increase since the act will boost the amount the nation's higher-income senior citizens owe the Internal Revenue Service by as much as $1,600 per couple in 1989, and up to $2,100 in 1993.

Strong opposition to MCCA's surcharge financing provision and its estimated excess reserve have forced Congress to examine options that range from modifying the financing, delaying, or even scrapping the Catastrophic program entirely.

Once again this year, Congress is merely toying with ways to control soaring health costs, emphasizing an overhaul of the way Medicare pays doctors, including setting annual overall spending targets for physicians' services. Unless serious long-term cost control action is taken to reduce the explosive growth in health care expenses, Americans will be forced to absorb a rapidly growing health care bill in the years ahead, measured both for individuals and government. Unfortunately, dozens of factors will continue to put upward pressure on health costs.