Federal statisticians have toned down their dire projections of accelerating national healthcare spending in the coming decade. They credit current slow Medicare spending growth and expectations of lower private-sector and Medicare spending increases after 2003.
That's a major change from just last fall, when HCFA said the cost control benefits of managed care were waning and would cause healthcare spending to rev up after 2000 (Sept. 14, 1998, p. 2).
The revised forecast, released earlier this month, could support providers' case that the Balanced Budget Act of 1997 cut too deeply into Medicare revenues and needs to be rolled back.
"The (budget act) had a tremendous effect, certainly much larger than Congress said it would have at the time it passed," said Linda Magno, managing director for policy development at the American Hospital Association. "I think the overall effect of the (law) on Medicare spending has been quite significant and, from our perspective, can't be overstated."
HCFA is projecting that from 1999 to 2007, the U.S. will spend about $14.5 trillion on healthcare, some $152 billion less than it projected last fall.
In 2007, the U.S. will spend a little more than $2 trillion on healthcare, some $90.2 billion-or 4.2%-less than it had projected last year, the agency said. By then, healthcare spending will represent 16% of the U.S. gross domestic product, 0.6 percentage points less than the agency projected last year.
This year's projections also show that in the past forecasters have underestimated the effects of Medicare fiscal discipline in the wake of the budget act and the federal government's fraud crackdown.
The 1998 projections showed that Medicare's share of total healthcare spending would dip slightly and remain flat at less than 19.5% before turning up again in 2007.
This year's projections, however, show that Medicare's share of healthcare spending will be about one percentage point lower, remaining at less than 18.5% through 2007.
HCFA is basing its new projections on current spending patterns that continue to defy expectations. With the recent slow growth in spending, HCFA statisticians have a smaller spending baseline from which to estimate growth. That means that even if the growth rate of healthcare spending explodes in coming years, the absolute spending figure won't reach the heights forecast in the past.
Current trends in healthcare cost increases reflect what happened between 1993 and 1996-when healthcare spending increased 5% annually-more than they reflect the double-digit growth rates of the 1970s and 1980s.
The new HCFA projections show a slowdown in the expenditure growth rate in the last half of the next decade. Where the agency's 1998 projections indicated healthcare expenditures would grow more than 7% annually between 2002 and 2007-peaking at 7.7% in 2007-its new projection is that annual growth will be less than 7% in every year but 2001.
But the 7.1% growth rate in 2001 is a slight upward revision from last year's projection, which put it at 6.9%.
For hospitals, the outlook is much the same under either projection. Hospitals' share of healthcare expenditures will shrink slightly, from more than 32% in 1999 to less than 31% in 2007.
HCFA's continuing downward revision of healthcare spending indicates it is still wary of the return of healthcare inflation of the 1970s and 1980s, said healthcare economists who have reviewed the new HCFA numbers.
With the unexpected slow growth since the mid-1990s, however, HCFA's forecasters are forced to reduce their estimates of future spending.
"It's very difficult to project into the future, particularly when you're coming off a period that's unprecedented," said Stuart Guterman, principal research associate with the Urban Institute, a Washington-based think tank.
Unlike last year's announcement of health spending projections, which garnered prominent media coverage, HCFA's recent announcement of healthcare cost projections went virtually unnoticed.
The 1998 projections were announced in a news conference sponsored by Health Affairs, which for the first time published the 10-year projections last year, said Andrea Zuercher, the journal's deputy editor. This year's numbers, however, did not represent a significant change from last year, prompting Health Affairs to forgo a news conference, Zuercher said.