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CMS: Health Spending to Rise 5.8% a Year Through 2025

Affordable Care Act helps keep spending growth at modest level, report says

Total health care spending growth is expected to average 5.8% annually over 2015–2025, according to a report published in Health Affairs and authored by the Centers for Medicare and Medicaid Services’ (CMS) Office of the Actuary (OACT). Projected national health spending growth remains lower than the average over the previous two decades before 2008 (nearly 8%).

“The [Patient Protection and] Affordable Care Act continues to help keep overall health spending growth at a modest level and at a lower growth rate than the previous two decades. This progress is occurring while also helping more Americans get coverage, often for the first time,” said CMS Acting Administrator Andy Slavitt. “Per-capita spending and medical inflation also remain at historically very modest levels, demonstrating the importance of continuing to reform our delivery systems.”

In 2015, medical price growth was estimated to continue to be very low, helping to restrain overall health spending growth. In addition, the Medicare program is testing various alternative payment approaches, which may provide some relief to long-term spending growth, even as a record number of people age into Medicare. Overall, national health expenditures were estimated to have reached $3.2 trillion in 2015.

Health spending is projected to grow 1.3% faster than the gross domestic product (GDP) per year over 2015–2025; as a result, the health share of GDP is expected to rise from 17.5% in 2014 to 20.1% by 2025. Federal, state, and local governments are projected to finance 47% of national health spending (up from 45% in 2014).

Other findings from the report:

  • National health spending growth is estimated to have been 5.5% in 2015. By 2016, slower growth in health spending of 4.8% is projected as the enrollment in Medicaid and Marketplace plans slows and the associated declines in the number of the uninsured decreases. Total annual health care spending growth is expected to average 5.8% over 2015–2025.
  • In 2015, medical price inflation slowed to 0.8%, down from 1.4% in 2014. Hospital prices increased by 0.9% while price growth in physician services fell by 1.1%.
  • The share of health expenses that Americans pay out-of-pocket is projected to decline from 10.9% in 2014 to 9.9% in 2025.
  • The insured share of the population is expected to continue to rise from 89% in 2014 to 92% by 2025.
  • Private health insurance expenditures are estimated to have increased by 5.1% from 2014 to 2015, reaching $1.0 trillion. Thereafter, average annual growth through 2025 is expected to be similar (5.4%).
  • Medicaid spending growth is slowing significantly to 5.3% in 2016, which the report attributes to slower enrollment growth and stronger utilization management. Spending growth is expected to average 5.6% in 2017–2019, which is lower than in 2014–2015.
  • In 2015, Medicare expenditures are expected to have been $647.3 billion, a 4.6% increase from 2014, driven partly by increased enrollment. However, per-enrollee costs are estimated to have increased by 2.4%, the same as the previous year.
  • Prescription drug spending is projected to grow an average of 6.7% per year for 2016 through 2025. This follows growth of 12.2% in 2014 and 8.1% in 2015 when spending growth was influenced by the introduction of expensive new specialty drugs, such as those used to treat hepatitis C virus infection.

Sources: CMS; July 13, 2016; and Health Affairs; July 2016.

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