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The economic recession and rising unemployment-plus changing demographics and baby boomers aging into Medicare-are among the factors expected to influence health spending during 2009-2019. In 2009 the health share of gross domestic product (GDP) is expected to have increased 1.1 percentage points to 17.3 percent-the largest single-year increase since 1960. Average public spending growth rates for hospital, physician and clinical services, and prescription drugs are expected to exceed private spending growth in the first four years of the projections. As a result, public spending is projected to account for more than half of all U.S. health care spending by 2012.

During the projection period (2008-2018), average annual growth in national health spending is projected to be 6.2 percent-2.1 percentage points faster than average annual growth in gross domestic product (GDP). The health share of GDP is anticipated to rise rapidly from 16.2 percent in 2007 to 17.6 percent in 2009, largely as a result of the recession, and then climb to 20.3 percent by 2018. Public payers are expected to become the largest source of funding for health care in 2016 and are projected to pay for more than half of all national health spending in 2018.

The outlook for national health spending calls for continued steady growth. Spending growth is projected to be 6.7 percent in 2007, similar to its rate in 2006. Average annual growth over the projection period is expected to be 6.7 percent. Slower growth in private spending toward the end of the period is expected to be offset by stronger growth in public spending. The health share of gross domestic product (GDP) is expected to increase to 16.3 percent in 2007 and then rise throughout the projection period, reaching 19.5 percent of GDP by 2017.

Growth in national health spending is projected to slow slightly from 6.9 percent in 2005 to 6.8 percent in 2006, marking the fourth consecutive year of a slowing trend. The health share of gross domestic product (GDP) is expected to hold steady in 2006 before resuming its historical upward trend, reaching 19.6 percent of GDP by 2016. Prescription drug spending growth is expected to accelerate to 6.5 percent in 2006. Medicare prescription drug coverage has dramatically changed the distribution of drug spending among payers, but the net effect on aggregate spending is anticipated to be small.

Growth in national health spending is projected to slow in 2005 to 7.4 percent, from a peak of 9.1 percent in 2002. Private health insurance premiums are projected to slow to 6.6 percent in 2005, with a rebound expected in 2007. The introduction of Medicare Part D drug coverage in 2006 produces a dramatic shift in spending across payers but has little net effect on aggregate spending growth. Health spending is expected to consistently outpace gross domestic product (GDP) over the coming decade, accounting for 20 percent of GDP by 2015.

National health spending growth is anticipated to remain stable at just over 7.0 percent through 2006, the result of diverging public- and private-sector spending trends. The faster public-sector spending growth is exemplified by the introduction of the new Medicare drug benefit in 2006. While this benefit is anticipated to have only a minor impact on overall health spending, it will result in a significant shift in funding from private payers and Medicaid to Medicare. By 2014, total health spending is projected to constitute 18.7 percent of gross domestic product, from 15.3 percent in 2003.

The rate of growth in national health expenditures is projected to fall to 7.8 percent in 2003 because of slower private and public spending growth. However, during the next ten years health spending growth is expected to outpace economic growth. As a result, the health share of gross domestic product (GDP) is projected to increase from 14.9 percent in 2002 to 18.4 percent in 2013. The recently passed Medicare drug benefit legislation (not included in these projections) is not anticipated to have a large impact on overall national health spending, but it can be expected to cause sizable shifts in payment sources.

We forecast a slowdown in national health spending growth in 2002 and 2003, reflecting slower projected Medicare and private personal health spending growth. These factors outweigh higher projected Medicaid spending growth, caused by weak labor markets, and an expectation of continued high private health insurance premium inflation related to the underwriting cycle. Over the entire projection period, national health spending growth is still expected to outpace economic growth. The result is that the health share of gross domestic product is projected to increase from 14.1 percent in 2001 to 17.7 percent in 2012.

This paper describes the most recent ten-year projections of national health spending. projections, produced annually, are based on econometric and actuarial models of the health sector. Our current outlook includes a sharper near-term increase in the health sector's share of gross domestic product (GDP), which reaches 16.8 percent by 2010, compared with the 15.9 percent projected last year. This difference largely reflects legislation-driven increases in public spending growth combined with a weaker economic outlook. Recent acceleration in private-sector health spending is projected to peak in 2002.