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Latest Health Spending Projections

By September 30, 2013Commentary

The Office of Actuary for the Centers for Medicare and Medicaid services has published its latest ten year projection for health spending in Health Affairs.  (HA Article)  Although growth in spending has declined in the last few years, the projections show an uptick in future years, meaning that spending has and will continue to increase at a rate faster than either general inflation or GDP growth.   For 2013, growth is estimated to be 4%, but in 2014 it will be 6.1%, largely due to implementation of the “reform” law (wait, that can’t be right, the administration promised us it would lower costs!).   Medicaid spending will grow by 12.2% and private health insurance by 7.7%, while out of pocket spending declines by 1.5%, due to more people having coverage.  The reform law accounts for 1.6% excess spending growth or about $50 billion.  On a per capita basis, 5% or greater growth is expected during the projection period and during the entire period is higher than GDP per capita increases.  Most components of health care–hospital, physician, drugs–are expected to show relatively similar growth rates.  Government administration spending, not surprisingly, will show a significantly higher rate of increase.  From 2015 on, Medicare spending is expected to accelerate by over 7% a year, due to more beneficiaries and the aging of beneficiaries, which tends to increase costs.  Medicaid spending will also grow dramatically during the time period, due to the reform law expansion of eligibility.  Although the growth rate is not as great, private insurance coverage spending will also increase, again largely due to coverage expansions.  While the projection is for slower out of pocket spending increases, the very rapid spread of defined contribution and high-deductible plans makes this questionable.  Consumers look like the big losers in reform.  What is fairly clear is that health spending growth will continue to be a major budgetary and fiscal problem that must be addressed with a real reform.

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