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CMS Predicts 5.8% Annual Health-Care Spending Growth Through 2024

Drivers include aging population, spiraling drug costs, and coverage expansion under Affordable Care Act

Health care spending growth will increase by an average of 5.8% annually over the next decade and will consume nearly 20% of the nation’s gross domestic product by 2024, according to projections from the Centers for Medicare & Medicaid Services (CMS) published in Health Affairs.

Key drivers for spending growth include an improving economy, an aging population, spiraling drug costs, and coverage expansion under the Patient Protection and Affordable Care Act (PPACA). As a result, health care spending as a share of the nation’s gross domestic product will increase from 17.4% in 2013 to 19.6% in 2024, the CMS predicts. Further, the nearly 6% annual increase in health care spending growth would greatly surpass overall inflation in the larger economy, which was at 0.4% for the past year.

“When you have health care inflation growing much faster than the CPI [consumer price index], you have health care spending crowding out other spending in the family budget, and it also happens in government budgets,” Tevi Troy, president of the American Health Policy Institute, told HealthLeaders Media. “Medicare/Medicaid spending is starting to crowd out all other spending to the point where all government spending is going to be for health care and service to the debt.”

CMS actuaries called the health care cost growth projections “relatively modest” compared with the 9% average annual growth in health care spending in the 30 years before the 2007 recession. The actuaries noted that the slowing growth comes even after 8.4 million people have gained insurance coverage.

During a conference call with the media on July 28, CMS actuary Sean P. Keehan said that the growth in health care costs “will rebound from their relative historic lows, but they are not going to reach levels where they were pre-recession time.”

“There are a few reasons why we think that,” Keehan added. “There is going to be more price transparency and price sensitivity and the presence of narrow networks. We are projecting that they will keep the acceleration of price growth fairly modest.”

The continued rise in high-deductible health plans that make consumers shoulder more of the cost is expected to play a significant role in keeping health care cost growth in check, CMS said.

In 2013, health care spending growth was close to the historically low rate of 4%. As the economy improved, CMS said, spending growth increased to 5.5% in 2014, the first time growth surpassed 5% annually since 2007.

The increase in overall spending, which amounted to $3.1 trillion in 2014, was driven by the newly insured individuals and by prescription drugs, most notably the expensive new treatments for hepatitis C. As a result, prescription drug spending growth increased from 2.5% in 2013 to 12.6% in 2014 –– its highest annual rate of growth since 2002. From 2013 to 2014, prescription drug prices rose from 2.3% to 4.1%, CMS said.

Cost growth is expected to decelerate to 5.3% in 2015 as some of the initial effects of the PPACA moderate and drug spending slows. By the end of the decade, annual health care cost growth is expected to increase by 6% due to the medical costs associated with aging baby boomers, with nearly 40% of every health care dollar going to either Medicare or Medicaid.

The CMS report also noted that Medicaid covered 66.5 million people in 2014, a 12.9% increase in lives covered. Spending growth for the program grew by 12%. However, because the newly enrolled Medicaid beneficiaries tend to be healthier than traditional Medicaid enrollees, per-enrollee spending growth fell from 3.8% in 2013 to –0.8% in 2014, CMS said.

In the private sector, commercial health plans saw their premiums increase by 6.1% in 2014, up from 2.8% in 2013. Private health plans collected more than $1 trillion in 2014. The annual spending growth for private plans is expected to hit 5.6% in 2024, compared with 7.9% for Medicare and 5.9% for Medicaid.

“The [PP]ACA, by expanding coverage, is spending more money. The population is continuing to age. We still have too many people who are overweight or obese. We have the overall costs going up, and insurance premiums are getting higher,” Troy said.

“The moderation in health inflation over the past couple of years may be a trend that has played itself out. It predates the [PP]ACA. We are going to continue to see spending growth until we see some policy changes.”

Sources: HealthLeaders Media; July 29, 2015; and Health Affairs; July 2015.

 

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