Aging population, rising healthcare costs a dangerous mix for economy, Moody's says

U.S. healthcare spending will continue to rise as the population ages and as the costs of medical services grow, which will pose severe negative implications for both public and private sectors, according to a recent report by Moody's Investors Service.

In 2016, U.S. healthcare spending totaled $3.3 trillion, or 18 percent of gross domestic product. This is nearly double other high-income countries. Households and businesses made up nearly half of that spending.

Unless the costs of medical services decline, the amount the U.S. spends on healthcare will increase as the population ages, "pressuring public sector budgets, straining household finances and weighing on business competitiveness," Moody's said.

The high and rising healthcare spending is contributing to the widening U.S. fiscal deficit and is increasingly nudging out discretionary spending in other areas such as education or infrastructure.

"Thus, as healthcare spending keeps rising, it will also indirectly weigh on future US economic growth potential," the report reads.

Healthcare expenses are rising for most households as high-deductible insurance plans gain popularity, thus raising out-of-pocket spending. For about 50 percent of the population with employee-sponsored health plans, premiums and out-of-pocket costs have risen faster than wages.  As consumers take on more of their healthcare expenses, some households are reducing their spending on other items, taking on debt or foregoing care, Moody's said.

As U.S. healthcare spending grows, U.S. employers are taking on more financial responsibility as well in the form of rising employee healthcare costs. These costs raise the marginal costs per employee, which could affect hiring decisions and a company's margins.

"By raising the marginal cost per employee, high healthcare costs might also lead companies to reduce spending on other employee-related expenses that add to retention and productivity, such as higher wages, other benefits and training," Moody's explained.

U.S.-based companies may find themselves at a disadvantage to foreign competitors with operations overseas, which are less exposed to rising healthcare costs.

Read the full Moody's report here.

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