The Sustainability of Health Spending Growth

34 Pages Posted: 9 Jan 2006

See all articles by Glenn R. Follette

Glenn R. Follette

Board of Governors of the Federal Reserve System

Louise Sheiner

Board of Governors of the Federal Reserve System; National Bureau of Economic Research (NBER)

Date Written: December 2005

Abstract

We evaluate the long-run sustainability of health spending growth. Under the criterion that non-health consumption does not fall, one percent excess cost growth appears to be an upper bound for the economy as a whole when the projection horizon extends over the century, although some groups would experience declines in non-health consumption. More generally, the increase in health spending as a share of income may lead to a significant expansion of public sector financing, as has been the case historically. Extrapolation of historical trends also suggests that higher health spending will lead to insurance contracts with lower out-of-pocket payment shares, putting further upward pressure on health care expenditures.

Keywords: Health spending, sustainability, Medicare, cost growth

JEL Classification: E22

Suggested Citation

Follette, Glenn R. and Sheiner, Louise, The Sustainability of Health Spending Growth (December 2005). FEDS Working Paper No. 2005-60, Available at SSRN: https://ssrn.com/abstract=874078 or http://dx.doi.org/10.2139/ssrn.874078

Glenn R. Follette (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Louise Sheiner

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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