Will Consumers Keep the Health Care Industry Growing?

Fifty-three percent of Americans say that they or someone in their family reduced their use of health care in the past year because of the cost, according to a Kaiser Family Foundation poll. Thirty-five percent used over-the-counter drugs or home remedies instead of seeing a physician. More than one in four people or someone in their household did not obtain medical care they really needed. Of that group, 21 percent did not fill a prescription, and 16 percent avoided seeking care for a major illness. This included foregoing doctor visits for chronic conditions or not getting recommended surgery.

Since the economic crisis really began last September, and the survey asked about the past 12 months, this is only the beginning of a change that has the potential to take a serious bite out of pharmaceutical, hospital, and physician revenues. But the Medicare actuaries who annually forecast growth in U.S. health spending see it as a temporary blip rather than as a potentially permanent shift. In their latest report, the researchers acknowledge that the growth in the use of medical services dropped to 1.7 percent in 2008 because of "the effects of slower growth in filled prescriptions, physician visits, and elective hospital procedures." With the recession leading to an increase in the number of the uninsured, they forecast that utilization will expand even more slowly from 2009 to 2013. But after that, they predict growth will return to the level prior to 2008, partly because of the expected economic recovery.

Interestingly, the actuaries predict that the aging of the population will have little impact on utilization of services. "Notably, although the oldest members of the baby-boom generation will begin to enroll in Medicare in 2011," they say, "the influx of relatively younger beneficiaries is expected to lower per enrollee Medicare spending."

National health care spending, estimated at $2.4 trillion for 2008, is projected to increase an average 6.2 percent a year, reaching $4.4 trillion in 2018. By contrast, growth in GDP is expected to average 4.1 percent annually during the next decade, or 2.1 percentage points less than the average annual trend in health costs.

There are a few problems with this picture. For one thing, it doesn't factor in the health care reforms that the Obama Administration wants. Those changes could substantially increase coverage, which would increase demand, but they could also reduce provider payments or change how providers are paid. The forecast also assumes that the economy is going to recover substantially in the next few years. That's what we all hope; but if it doesn't, demand for health care services will drop substantially. And finally, as more of the cost is inevitably passed onto consumers, one wonders how much health care they will use.

Most observers assume that "people will always need health care," and that is one reason why the health care percentage of GDP is rising as the economy contracts. But not all health care is needed immediately, even if it's strongly recommended to prevent a serious illness or complications. So perhaps forecasters should start thinking about how much people will cut back when the cost of care rises beyond their reach.