The U.S. healthcare system has a big problem: aging Americans. An estimated 10,000 baby boomers are turning 65 daily, and the number of senior citizens is forecast to double by 2050.
Since Medicare provides healthcare for Americans over 65 and spending on healthcare climbs alongside age, a surge in people living into their 80s and 90s is likely to cause healthcare spending in the United States to skyrocket.
Spending by age
According to research conducted by the Kaiser Family Foundation, Medicare spends more money on healthcare for people in their 80s and beyond than it does for younger recipients. Americans age 80 and older as of 2011 represented about a quarter of all Medicare recipients, yet they accounted for a third of all Medicare costs.
That's worrisome given that Kaiser estimates the number of people in their 80s and older will triple between 2010 and 2050. The number of people living into their 90s or into their second century is expected to quadruple.
In 2011, the age at which Medicare paid the most per person for healthcare was 96. On average, 96-year-olds cost Medicare $16,145 per year, far more than the $5,562 per beneficiary the federal program spent on people who were 66 years old. After 96, Medicare spending per person dropped off significantly as people forwent treatment.
Since Medicare spends 38.9% more on people in their mid-90s than it does on people who are age 80 and three times what it spends on people who are 66, a quadrupling of Americans living until at least 90 will likely mean significant growth in the healthcare sector.
But growth for the sector won't just stem from an increasingly larger population of seniors. After adjusting for inflation, the amount per person being spent on older Medicare patients annually is climbing more quickly than the amount per person being spent on younger Medicare patients.
Between 2000 and 2011, the period for which the most recent data is available, spending on patients ages 66 to 69 grew by 5.8% annually, while spending on people in their 90s grew by 7.3% per year.
Why so much higher?
There are many reasons why healthcare spending grows significantly as we age, but one major cause is the need for inpatient and end-of-life care.
This next chart breaks out spending by age by the healthcare service provided. It shows that while Medicare spending on areas such as doctor visits and outpatient services as of 2011 declined after age 83, it climbed for other services such as inpatient hospitalization, skilled nursing, and home health services. Care provided by these institutions is growing increasingly complex, so it's also becoming increasingly expensive.
According to the Congressional Budget Office, spending on Medicare will grow from 3.25% of U.S. GDP in 2011 to as high as 4.26% in 2039.
Overall, the CBO expects 55% of growth in government spending on healthcare over that period will come from a growing number of older Americans and rising costs per patient. As a result, a larger population of older patients who need increasingly expensive healthcare services could suggest this sector is one investors should focus on in the coming decades.