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Finance and Economics Discussion Series
Finance and Economics Discussion Series logo links to FEDS home page The Sustainability of Health Spending Growth
Glenn Follette and Louise Sheiner

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

Full paper (156 KB PDF)

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Last update: December 19, 2005