Moderate Health Spending Growth Projections, 2015–25
Increases in Economic Growth, Faster Growth in Medical Prices, and Aging Population Remain Primary Drivers of Projected Increases
Bethesda, MD—New estimates released today from the Office of the Actuary at the Centers for Medicare and Medicaid Services (CMS) project an average rate of national health spending growth of 5.8 percent for 2015–25, exceeding the expected average growth in gross domestic product (GDP) by 1.3 percentage points per year. As a result, the health share of the economy is projected to be 20.1 percent at the end of this period, up from 17.5 percent in 2014. The study also finds that the percentage of the US population that is uninsured is expected to be 8 percent in 2025, down from about 11 percent in 2014.
The authors found that projected national health spending growth, though faster than observed in recent history, is slower than in the two decades before the recent recession, in part because of trends such as increasing cost sharing in private health insurance plans and various Medicare payment update provisions. An expected noteworthy shift at the end of the next decade is a change in who ultimately pays for the nation’s health care. By 2025, 47 percent of health spending is projected to be sponsored by federal, state, and local governments—almost 3 percentage points higher than 2014. In contrast, the projected share of health spending sponsored by businesses and households in 2025 is expected to be 53 percent, approximately 3 percentage points lower than in 2014. This expected higher share of spending by governments reflects the full impacts from the Affordable Care Act’s coverage expansions, the continued transition of the baby-boom generation into Medicare, and the growing gap between dedicated Medicare financing and program outlays.
Every year CMS’s Office of the Actuary releases an analysis of how Americans are expected to spend their health care dollars in the decade ahead. The predicted 5.8 percent growth rate is identical to the rate predicted for 2014–24 in the Office of the Actuary’s 2014 report, published last year in Health Affairs.
The new findings appear as a Health Affairs Web First article; the study link is: http://content.healthaffairs.org/lookup/doi/10.1377/hlthaff.2016.0459.
The study will also be published in the journal’s August 2016 issue, to be released Monday, August 8, at 4:00 p.m. Eastern Time.
“Following the initial effects of the Affordable Care Act (ACA) on health care spending and insurance coverage, increases in economic growth, faster growth in medical prices, and population aging are expected to be the primary drivers of national health spending and coverage trends over the next decade,” says Sean Keehan, the study’s first author.
Keehan and his coauthors project that, following slower growth of 4.8 percent in 2016, health spending growth will accelerate slightly in 2017–19 (averaging 5.7 percent). Medicare spending is also expected to accelerate over this three-year period (averaging 6.7 percent), as baby boomers continue to age into this federal program, and existing beneficiaries are expected to use services more often than in the recent past. For the Medicaid program, the authors expect that spending growth will average 5.6 percent in 2017–19; so too will projected private health insurance spending growth (representing its fastest rate for any subperiod examined in the projection period).
Here is a chronological look at yearly projected trends:
- National health spending is projected to have grown 5.5 percent, compared to 5.3 percent in 2014, and to have reached $3.2 trillion, due in part to increased health care utilization among the newly insured.
- A decrease of 7.2 million people in the uninsured population (to 28.4 million) is expected as consumers acquired coverage through Medicaid or private insurance (including through the Marketplaces.)
- Medical price inflation continued to grow at a historically low rate of 0.8 percent (down from 1.4 percent in 2014). Hospital price growth slowed, and physician price growth declined, coinciding with the expiration of the temporary increase in payments to Medicaid primary care physicians.
- Although national health spending per capita is projected to exceed $10,000 for the first time, aggregate national spending growth is projected to slow to 4.8 percent, largely due to slower growth in Medicaid spending.
- The uninsured population is expected to decrease, but by just 1.6 million (to 26.8 million), with smaller increases in both private insurance enrollment and Medicaid enrollment than occurred in 2014 and 2015.
- Medicaid spending growth is projected to slow to 5.3 percent, down from an average of 10.8 percent in 2014–15. In contrast, Medicare spending growth is projected to accelerate to 5.2 percent, up from 4.6 percent in 2015, due in part to greater inpatient service use—which had declined in 2015.
- Slowdowns are expected in physician and clinical services spending growth (falling to 4.5 percent, 0.9 percentage points less than in 2015) and in prescription drug spending growth (falling from 8.1 percent in 2015 to 6.3 percent in 2016), in part the result of reduced spending on newly approved drugs.
- For the period 2017–19, national health spending growth is projected to average 5.7 percent, increasing to an average of 6.0 percent per year for 2020–25, the highest for any subperiod examined.
- Medicare spending growth is projected to average 6.7 percent in 2017–19 and 7.6 percent in 2020–25. The growth rate associated with the latter half of the projection period is faster than the spending of other major payers and partly reflects expected higher utilization rates of Medicare-covered goods and services that more closely resemble their long-term averages.
- Growth in private health insurance spending is expected to remain at, or above, 5 percent on average for 2020–25 but to generally decelerate at the end of the period in lagged response to slowing projected growth in incomes. Notably, growth in private health insurance spending is expected to be outpaced by projected growth in Medicare spending, in part due to the continued shift of baby boomers out of private health insurance and into the federal health care program.
- Medical prices are projected to gradually rise over the period 2015–25, averaging 2.4 percent for 2017–19 and 2.8 percent for 2020–25.
About Health Affairs
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