An enhanced macroeconomic approach to long-range projections of health care and social security expenditures as a share of GDP

An enhanced two-sector economic growth model is created to project health c are and Social Security expenditures as a share of GDP in the United States . Parameters used in the economic simulation model are based largely on con sensus views in the literature. The main advantages of an economic model ov er the more commonly used actuarial models are: (1) explicit specification of underlying fundamental structures, (2) ability to investigate relationsh ips in the entire economy, and (3) a fuller scope provided for policy analy sis. Under the base model assumptions, that is, a continuation of current c onditions for the production of, demand for, and financing of health care s ervices, the economic model projects that the health care sector consumes 1 5.8 percent of national output by the year 2000 and 27.1 percent by the yea r 2040. The annual rate of increase in per capita consumption (less health spending) ("adjusted consumption") falls from 1 percent in 2000 to 0.6 perc ent in 2025, and then increases to 0.8 percent in 2040, as the rate of incr ease in spending on health care for the elderly, and the capital investment required to support such spending, flow and ebb with the passing of the ba by boom generation. Over the whole projection horizon, government spending on the health care of the elderly increases from a projected 3.8 percent of GDP in 2000 to 9.2 percent in 2040. Social Security expenditures for the e lderly are projected to increase from 3.9 percent to 6.3 percent over the s ame period. More widespread HMO coverage is shown to lead to some small imp rovements in adjusted consumption. Over the long horizon, improved efficien cy and productivity in the health sector and lower Social Security benefits assumed to cause an increased rate of savings and investment, however, act ually cause the rate of growth in health spending to increase and adjusted consumption to decline, ceteris paribus. By contrast, an increase in sensit ivity to health care prices leads to dramatically improved results, both in higher adjusted consumption and better finances for government programs of healthcare for the elderly. (C) 1999 Society for Policy Modeling. Publishe d by Elsevier Science Inc.