Posted 4/5/12 on the Altarum Institute’s Health Policy Forum
If you have followed Parts I and II of this series, you will be aware of the key role played by federal non-health spending in my calculation of the sustainable growth rate in national health expenditures. Given the expanded coverage provisions of the Affordable Care Act, I argued that the sustainable rate of growth in health spending is largely determined by what the nation chooses to allocate to federal health spending in future years. And this allocation is simply the difference between what the nation is willing to provide in total tax revenues and the amount of those revenues being set aside for non-health federal spending.
For example, suppose the nation wishes to keep tax revenues at 18 percent of GDP and set aside 13.5 percent of GDP for non-health spending (under a balanced primary budget). (1) Then the amount available for federal health spending would be 4.5 percent of GDP. Using 2035 as the target year for bringing federal health spending in line with this target, I calculated that the corresponding growth rate in national health expenditures would be 2.6 percent annually, starting in 2012. This is 2.2 percent below the expected GDP growth rate over this period, and lowers the health spending share of GDP to 10.8 percent by 2035—a stark contrast to the 2011 health spending growth rate (4.5 percent) and share of GDP (18.1 percent).