Expanded Insurance Coverage, Aging Population, and Economic Growth Are Primary Drivers of Projected Increase
New estimates released today from the Office of the Actuary at the Centers for Medicare and Medicaid Services (CMS) project a 5.5 percent rate of health spending growth for 2014, consistent with previous predictions. The average rate of longer-term projected growth is 5.8 percent for 2014-24, exceeding the expected average growth in gross domestic product (GDP) by 1.1 percentage points.
Expanded health insurance coverage for Americans through the Affordable Care Act (ACA), stronger economic growth relative to the recent past, and the aging of the US population are primary contributing factors to health spending growth for the entire projection period.
Every year CMS's Office of the Actuary releases an analysis of how Americans are likely to spend their health care dollars in the coming decade. The predicted 5.8 percent growth rate is slightly higher than the 5.7 percent growth rate predicted for 2013-23 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 and will appear in the journal's August issue.
"After six years of national health spending growth hovering near historically low rates, we're projecting faster growth in health spending over the next decade reflecting expanded insurance coverage under the ACA, expectations of continued improvements in the economy, and population aging," says Sean Keehan, the study's lead author. "However, these projected growth rates are significantly lower than those observed over the three decades prior to the recent recession."
Keehan and his coauthors predict that longer-lasting factors will result in relatively modest projected health spending growth over the decade ahead--eventually averaging close to 6 percent per year, compared to an average of about 9 percent over the three decades prior to the economic recession.
- After growth averaging a historically low 4.0 percent annually in 2008-13, national health spending is projected to have grown 5.5 percent to reach $3.1 trillion in 2014.
- An estimated 8.4 million Americans are projected to have gained health insurance coverage chiefly through either Medicaid or private plans (including those in the health insurance Marketplaces) in 2014-leading not only to a reduction in the number of uninsured but also to faster projected growth in spending.
- Also contributing to the acceleration is a substantial increase in prescription drug spending growth, which is projected to have grown 12.6 percent in 2014 (from 2.5 percent in 2013). This is fueled largely by new, high-cost specialty drugs for treatment of hepatitis C and, to a lesser extent, new treatments for cancer and multiple sclerosis.
- Primarily due to coverage expansions, however, out-of-pocket spending growth is projected to have slowed from 3.2 percent in 2013 to just 1.3 percent in 2014. Consequently, the share of national health spending paid for out of pocket by consumers is projected to have declined from 11.6 percent in 2013 to 11.2 percent in 2014.
- Despite increased coverage and use of health care related to the coverage expansions, the rate of medical price inflation in 2014 remained low, at 1.4 percent.
- National health spending growth is expected to slow slightly to 5.3 percent in 2015, as the effects of coverage expansion moderate and prescription drug spending decelerates.
- Medicaid spending growth is projected to slow to 8.2 percent in 2015, down from 12.0 percent in 2014, primarily reflecting slower enrollment growth after the initial surge in 2014. Medicare spending growth is projected to decelerate slightly-down from a projected 5.3 percent in 2014 to 4.7 percent in 2015.
- In contrast, growth rates in private health insurance premiums and benefits are projected to accelerate slightly-to 6.4 percent and 6.0 percent, respectively-reflecting the increased enrollment in the new health insurance Marketplaces.
- From 2016 to 2018, national health spending growth is projected to average 5.3 percent.
- Anticipated stronger economic growth in 2017-19, however, is expected to result in a lagged increase in the growth of health expenditures in the years following-since increases in the use of health care goods and services typically follow periods of faster growth in consumers' disposable income.
- By the latter years of the projected period, 2019-24, health spending growth rates are projected to rise to an average of 6.2 percent per year, as more baby-boomers become eligible for Medicare and the Medicaid population ages.
- During this latter period, it is projected that nearly four out of every ten health care dollars will be spent on enrollees in these two largely government-funded programs. As a result, nearly half (47 percent) of total US health expenses are expected to be paid for by federal, state, and local governments by 2024.
- By the end of the projection period, health spending is projected to account for 19.6 percent of gross domestic product (GDP), up from 17.4 percent in 2013.
The authors note that these projections are subject to substantial uncertainty related to the continuing effects of the ACA-including the behavioral response to health reform on the part of consumers, insurers, providers, and employers throughout the projection period. They are also subject to influence by variable macroeconomic conditions, such as changes in overall economic growth, economywide price growth, or unemployment rates. The Office of the Actuary's projections are based on analysis of more than fifty years of national health expenditure data.