Health spending could eat up income gains: study

Household income gains will increasingly be absorbed by healthcare spending should costs outpace economic growth in coming decades, according to an analysis by three economists published in the journal Health Affairs.

Should U.S. healthcare spending grow 1 percentage point faster than the gross domestic product through 2020, roughly one-third of any income gains will be absorbed by healthcare, the projections show. Should healthcare grow 2 percentage points faster than the economy, healthcare will swallow nearly half, or 44%, of income growth, the authors wrote. In the eight years that ended in 2007, healthcare grew 2.2 percentage points faster than the GDP, eroding roughly one-third of any income gains, the authors note.

Later projections show more of pay increases will be needed to cover healthcare spending. In the 30 years that follow 2020, healthcare will account for 42% and 75% of income gains if spending outpaces the economy by 1 percentage point and 2 percentage points, respectively. Between 2050 and 2083, 63% of pay increases will be absorbed by healthcare at the slower rate. Income will actually shrink under healthcare spending at the faster rate during the same period, under the projections. Healthcare costs will swallow any income growth and then some—154% of pay gains—at a projected 2 percentage point rate of growth above GDP.

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