According to Health Affairs, the U.S. spent 16.0% of GDP on health expenditures in 2006. What will we be spending on health care in 2040?
Robert Fogel takes a stab at answering this question. He claims that by 2040, the U.S. will spend 29% of GDP on health care in 2040.
There are four main avenues by which health care spending will change. First, there will likely be a continued downward trend in the age-specific prevalence of chronic diseases. The prevalance of age specific chronic diseases “declined at a rate of about 1 percent per annum between 1910 and 1980.” Second, the cost of treating diseases will change by 2040. In the future, will innovations create higher quality medical care at higher cost, or will these innovations decrease health care spending? Thirdly, as life expectancy increases and fertility rates decrease, we will likely see an increase in the share of the population who is elderly. This will of course lead to increased health care spending even if the prevalence of age-specific chronic diseases and treatment costs remain constant. Fourth, health care is a luxury good. As incomes rise, individuals general spend a higher share of their income on medical care. Fogel (2000) estimates that the long-term income elasticity of health care consumption is 1.6.
Using these four assumptions, Fogel claims that the U.S. will spend 29% of GDP on health care. U.S. GDP in 2007 was $13.84 trillion. If we assume a 2.5% annual growth rate, 29% of GDP in 2040 means that the U.S. will spend $9.07 trillion on health care.
In the future, the health care system may need a bail-out as well.
- Aaron Catlin, Cathy Cowan, Micah Hartman, Stephen Heffler the National Health Expenditure Accounts Team (2008) “National Health Spending In 2006: A Year Of Change For Prescription Drugs” Health Affairs vol. 27, no. 1: 14-29.
- Fogel, Robert W. (2008) “Forecasting the Cost of U.S. Health Care in 2040” NBER Working Paper No. 14361.