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 suggests.

 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.