22 Pages Posted: 2 Feb 2012

Date Written: April 3, 2008

Abstract

Follette and Sheiner focus on the determinants of the historical and prospective growth in health care spending in the United States. Income and aging had a large role in the past, and the rise in health insurance coverage had a dramatic effect on spending for health care of the elderly. The authors examine the implications for consumption of non-health goods and services of ever increasing expenditure on health care and argue that per capita expenditure persistently outpacing per capita income would not lead to the crowd-outing of non-health consumption. They study the distribution of health spending by income quintile and age group over the next seventy five years, projecting current spending and financing patterns and assuming a given excess growth of spending over income, and find unprecedented levels of private health spending by the lowest quintiles. Finally, Follette and Sheiner assess the implications for the federal budget of two alternatives that may capture the endogenous response by government in the past and they examine two scenarios where government support is reduced, which is inconsistent with past experience but consistent with proposals to scale back entitlement growth in the face of budget pressures.