Policy Documents

Health Care Spending: What the Future Will Look Like

Christian Hagist and Laurence Kotlikoff –
June 1, 2006

In this policy document, the authors analyze the debate over health care and costs of care.  European critics of the U.S. health care system often focus on the private provision of health care and health insurance. Yet the more important difference between the United States and other developed countries is the failure to control government spending. Other countries employ global budgets and control access to expensive drugs and new technology. The United States, by contrast, has very meager spending controls. If current trends continue, U.S. government health care spending will consume an ever growing portion of national income—far more so than any other developed country. 

Government health care expenditures have grown much more rapidly than the economy in all developed countries. Between 1970 and 2002 these expenditures per capita grew at almost twice the rate of gross domestic product (GDP) per capita in 10 countries studied: Australia, Austria, Canada, Germany, Japan, Norway, Spain, Sweden, the United Kingdom and the United States. 

Over the past 30 years the annual rate of growth in real per capita government spending on health care was highest in Norway (5.3 percent), followed by the United States (5.1 percent) and Spain (5.1 percent). 

The growth rate was lowest in Sweden (2.6 percent) and Canada (3.1 percent). 

Health care spending changes over time because of increases in benefits or changes in the age structure of the population. Because older people consume more health care than younger people in every country, aging populations will inevitably cause spending increases. However, benefit growth has been remarkably high and accounts for 75 percent of overall health care spending growth in the 10 countries analyzed. an.