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Report: Recession Will Trigger Huge Medicaid Bill

By Dave Eberhart   |   Tuesday, 24 Feb 2009 12:39 PM

As millions of unemployed Americans lose private health coverage in the recession, Medicaid, the national health program, will absorb a huge financial hit, according to a new Department of Health and Human Services (HHS) report.

In fact, say HHS analysts, spending on health care in the U.S. could double by 2017, reaching $4.3 trillion and accounting for 19.5 percent of the nation’s gross domestic product.

Program spending will ramp up 9.6 percent from $352 billion last year to $386 billion this year, concluded HHS experts.

“Our expectation is that growth in health spending is expected to be steady over the projection, which is 2007 through 2017, at 6.7 percent per year,” Andrea Sisko, an economist with the Centers for Medicare and Medicaid Services, said during a teleconference this week.

The nation’s economic downturn will help move more than half of all health-care expenditures onto the public sector by 2016. By 2018, government spending will account for 51.3 percent of health care outlays, the HHS analysts concluded.

And it’s not just the recession that is pushing the disturbing trend -- as baby boomers begin to enter the Medicare system, there will be a big swing in health care spending from the private to the public sector.

In other report findings:

  • Long-term projections have healthcare spending growing an average of 6.2 percent a year from 2008 to 2018, while the nation's gross domestic product is expected to average only 4.1 percent growth over that same period. This translates that health-care spending will account for more than 20 percent of the GDP by 2018.

  • Higher unemployment and slower wage growth during the recession will cause a dip in payroll tax revenues that could push the insolvency date for Medicare’s hospital insurance trust fund from 2019 to 2016.

  • In 2009, Medicaid spending is projected to grow 6.8 percent to $361.2 billion. Over the next 10 years, the program is expected to grow an average of 7.9 percent each year -- reaching $717.3 billion or 16.8 percent of health spending by 2017.

  • Slow income growth and declining job-based coverage will slow the growth in private health-care spending to a 15-year low of 3.9 percent in 2009. Meanwhile, public health spending, spearheaded by Medicaid, will increase by 7.4 percent to $1.2 trillion. Public healthcare spending will lurch up again after next year -- as the first wave of aging baby boomers becomes eligible for Medicare.

    All this is bad news for President Barack Obama, who has signaled his intent to try and cut the nation’s $1.4 trillion budget deficit in half by 2013, according to a report in the Kansas City Star.

    This week, the President told governors at the National Governors Association meeting in Washington that he would provide $15 billion to help needy states pay their share of the growing Medicaid payments.

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