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National Health Spending in 2014 and Going Forward

By July 29, 2015Commentary

The annual Center for Medicare and Medicaid Services Office of the Actuary report giving estimates of national health spending for coming ten years is out.  (OA Report)  The headline is an anticipated pickup in spending to an average of 5.8% a year through 2014.  GDP is projected to rise only 4.7% a year during this time.  For 2014 the Office is estimating that spending rose 5.5%, the first year of 5% plus growth since before the recession, in 2007.  The actuaries attribute the growth in 2014 to insurance expansions under the reform law and very rapid increases in drug costs.  Prescription drug costs rose 12.6% in 2014.  Over the ten-year projection period, various factors are said to predominate spending.  Early on the effects of enrollment expansions will continue, but will moderate after a few years.  Health care prices are set to accelerate in the 2016-18 period, according to the report, while Medicare utilization will pick up and near the end of the projection period, private health insurance premiums are anticipated to rise more rapidly.  Somewhat surprisingly, given what we know about the drug pipeline, increases in medication spending are projected to slow dramatically from that experienced in 2014, which I would question.

Among categories of payers, Medicaid spending is believed to have risen 12% in 2014, almost all due to a 12.9% increase in Medicaid enrollment, to 66.5 million Americans.  Per enrollee spending in Medicaid is expected to be muted, until the end of the projection period.  Medicare is also estimated to have modest per beneficiary spending growth, although the absolute growth will run over 5% due to substantial enrollment growth.  Private insurance spending rises are projected to be relatively stable, at between 5% and 6.4% over the projection period.  Out-of-pocket spending by consumers as a percent of total spending is estimated at 11.2% in 2014, down from 11.6% in 2013.  While cost-sharing has risen in private plans, many more people are now in Medicaid, which has basically no cost-sharing and the high cost-sharing designs in the commercial world have deterred people from actually seeking health care and spending money on it.  Government programs’ share of total health spending will continue to rise, which means this will be an even more significant public policy issue, as tax increases or declines in spending in other categories would be necessary to fund these programs.

As always, the report is packed with lots of useful and thought-provoking data.  And for those of who you are fans of government-run health care, believing it is administratively so much more efficient, please note the very large jumps in government administration expenses, with annual growth rates averaging well over 7%, higher than the rate of overall health spending growth.

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