Category Archives: forecasting medical and healthcare costs


Everyone should read the Op-Ed piece September 11 in the New York Times titled What We’re Afraid to Say About Ebola.

The author, Michael T. Osterholm, suggests two possibilities.

One is that Ebola travels to other large cities in the developing world, where poor sanitary and crowded conditions are common. This would be very bad.

The second possibility is that –

… an Ebola virus could mutate to become transmissible through the air. You can now get Ebola only through direct contact with bodily fluids. But viruses like Ebola are notoriously sloppy in replicating, meaning the virus entering one person may be genetically different from the virus entering the next. The current Ebola virus’s hyper-evolution is unprecedented; there has been more human-to-human transmission in the past four months than most likely occurred in the last 500 to 1,000 years. Each new infection represents trillions of throws of the genetic dice.

If certain mutations occurred, it would mean that just breathing would put one at risk of contracting Ebola. Infections could spread quickly to every part of the globe, as the H1N1 influenza virus did in 2009, after its birth in Mexico.

Why are public officials afraid to discuss this? They don’t want to be accused of screaming “Fire!” in a crowded theater — as I’m sure some will accuse me of doing. But the risk is real, and until we consider it, the world will not be prepared to do what is necessary to end the epidemic.

In 2012, a team of Canadian researchers proved that Ebola Zaire, the same virus that is causing the West Africa outbreak, could be transmitted by the respiratory route from pigs to monkeys, both of whose lungs are very similar to those of humans. Richard Preston’s 1994 best seller “The Hot Zone” chronicled a 1989 outbreak of a different strain, Ebola Reston virus, among monkeys at a quarantine station near Washington. The virus was transmitted through breathing, and the outbreak ended only when all the monkeys were euthanized. We must consider that such transmissions could happen between humans, if the virus mutates.

This would be a planetary threat, much like the huge flu epidemics.

Here is a recent BBC program with an hour length documentary and discussion of cures – which appear to exist at least in part.

Ebola The Search for a Cure BBC 2014


I’ve got to say that this outbreak and its threatened spread to much wider populations in Africa and perhaps elsewhere – without much being done from the United States or from European countries (or Japan and China) highlights a huge problem with priorities.

The World Health Organization (WHO) has indicated that the actual numbers of infected persons and deaths are likely to be an order of magnitude larger than are reported. And the outbreak is by no means contained, but seems to be on the verge of causing complete social breakdown in some areas.

At some point, perhaps when the number of infected grows from maybe 20,000 to 200,000, people will have to wake up. President Obama has acknowledged that the real danger is mutation. The chances of mutation increase as the number of infected persons increases.

Forecasts in the Medical and Health Care Fields

I’m focusing on forecasting issues in the medical field and health care for the next few posts.

One major issue is the cost of health care in the United States and future health care spending. Just when many commentators came to believe the growth in health care expenditures was settling down to a more moderate growth path, spending exploded in late 2013 and in the first quarter of 2014, growing at a year-over-year rate of 7 percent (or higher, depending on how you cut the numbers). Indeed, preliminary estimates of first quarter GDP growth would have been negative– indicating start of a possible new recession – were it not for the surge in healthcare spending.

Annualizing March 2014 numbers, US health case spending is now on track to hit a total of $3.07 trillion.

Here are estimates of month-by-month spending from the Altarum Institute.


The Altarum Institute blends data from several sources to generate this data, and also compiles information showing how medical spending has risen in reference to nominal and potential GDP.


Payments from Medicare and Medicaid have been accelerating, as the following chart from the comprehensive Center for
Disease Control (CDC) report


 Projections of Health Care Spending

One of the primary forecasts in this field is the Centers for Medicare & Medicaid Services’ (CMS) National Health Expenditures (NHE) projections.

The latest CMS projections have health spending projected to grow at an average rate of 5.8 percent from 2012-2022, a percentage point faster than expected growth in nominal GDP.

The Affordable Care Act is one of the major reasons why health care spending is surging, as millions who were previously not covered by health insurance join insurance exchanges.

The effects of the ACA, as well as continued aging of the US population and entry of new and expensive medical technologies, are anticipated to boost health care spending to 19-20 percent of GDP by 2021.


The late Robert Fogel put together a projection for the National Bureau of Economic Research (NBER) which suggested the ratio of health care spending to GDP would rise to 29 percent by 2040.

The US Health Care System Is More Expensive Than Others

I get the feeling that the econometric and forecasting models for these extrapolations – as well as the strategically important forecasts for future Medicare and Medicaid costs – are sort of gnarly, compared to the bright shiny things which could be developed with the latest predictive analytics and Big Data methods.

Neverhteless, it is interesting that an accuracy analysis of the CMS 11 year projections shows them to be are relatively good, at least one to three years out from current estimates. That was, of course, over a period with slowing growth.

But before considering any forecasting model in detail, I think it is advisable to note how anomalous the US health care system is in reference to other (highly developed) countries.

The OECD, for example, develops
interesting comparisons of medical spending
 in the US and other developed and emerging economies.


The OECD data also supports a breakout of costs per capita, as follows.


So the basic reason why the US health care system is so expensive is that, for example, administrative costs per capita are more than double those in other developed countries. Practitioners also are paid almost double that per capital of what they receive in these other countries, countries with highly regarded healthcare systems. And so forth and so on.

The Bottom Line

Health care costs in the US typically grow faster than GDP, and are expected to accelerate for the rest of this decade. The ratio of health care costs to US GDP is rising, and longer range forecasts suggest almost a third of all productive activity by mid-century will be in health care and the medical field.

This suggests either a radically different type of society – a care-giving culture, if you will – or that something is going to break or make a major transition between now and then.