Industry Study 

Out-of-Control Healthcare Spending Straining Budget 

7  2,008 

  By Alan L. Gropman 

Healthcare in the United States is a $2 trillion industry that soaks up about 16 percent of the gross domestic product. The rising cost of healthcare puts great pressure on the federal budget, and managing this strain in the next decade and beyond will probably affect the government’s ability to satisfy other discretionary spending requirements including national defense, according to a study by the Industrial College of the Armed Forces.

As healthcare costs rise, funds will increasingly be diverted from other priorities such as defense, homeland security, education, energy and transportation, the study says.

Few sectors of the U.S. economy are as frought with political anxiety as healthcare, asserts the study, which was written by a group of military and civilian students at ICAF last year. “The United States has the best healthcare in the world for some, but also has dismal life expectancy and child mortality statistics, and is spectacularly expensive.”

Controlling costs and expanding access are perhaps the greatest challenges facing the U.S. healthcare industry in the first quarter of the 21st century. The United States has a mature employer-based health insurance system with which many Americans remain satisfied. The ICAF study said that abandoning this system for a universal government-payer system is impractical and unrealistic. What is needed, however, is a government-payer alternative that the chronically and even temporarily uninsured can opt into to ensure uninterrupted access of primary medical and dental care.

A change of this magnitude could add to the already rising costs. The United States, noted the study, spends more money on healthcare than any other country. The 16 percent GDP in 2006 consumed by healthcare could grow to 19 percent in 2015.

Alan L. Gropman is a professor of national security policy at the Industrial College of the Armed Forces.

A PDF of the complete Industrial College of the Armed Forces study on the healthcare industry can be found here.

Please email your comments to SErwin@ndia.org

Reader Comments

Re: Out-of-Control Healthcare Spending Straining Budget

I think this article only scratches the surface of the impact healthcare spending will have. The current assumption is that the USG will provide an 80/20 low-cost health plan for low-income individuals and families (similar to Medicare). But the reality is that while seniors receiving Medicare can usually afford the 20% co-payment, low-income folks will not, which will create a push for a 100% plan that will vastly increae costs. The USG will then likely expand membership to non-low-income people provided they pay a premium that will be less than most commercial products. This will generate some revenues, but not enough to offset the increased costs. As more and more people move from commercial plans to the USG options, the premiums of commercial plans will rise, driving even more people to the USG plans, and leading to the eventual ending of the commercial plans and all plans being USG plans. So, I think anyone who thinks that USG healthcare will stop at offering a low-cost plan to low-income individuals isn't looking at the Big Picture. The "In For a Penny, In For a Pound" rule will apply, and expenses are going to go out of control very quickly.

Bruce Reynolds on 05/12/2009 at 11:16

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