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2015 Health Spending According to the Office of the Actuary

By July 14, 2016Commentary

As each year rolls by and health spending continues to grow, there should be an ever-increasing sense of urgency about addressing the problem.  This year’s report on 2015 national health spending by the CMS Office of the Actuary should add to that sense of urgency, but likely won’t.   (HA Article)   The headline number is that spending likely rose by 5.5% in 2015 and is projected to increase by an annual average of 5.7% from 2017 to 2019 and 5.8% from 2015 to 2025, consuming over 20% of GDP by the end of that time frame.  The relevant comparisons to understand the pain inflicted on the nation’s financial status and individuals’ wallets are GDP or other measures of economic growth and personal income increases.  Neither has or is likely to approach the growth rate of health spending.  GDP muddles along in the 2% area and we are due for a recession.  Income growth has been even more paltry.  The authors say that spending rises will exceed GDP by 1.3%, but that assumes a heroic burst of economic growth that seems particularly unlikely to occur under the current set of policies that strangle business formation and operation.

Much of the recent increase in spending is attributed to insurance expansions stemming from the reform law (which increasing looks more like deform rather than reform).  Hospital spending in 2015 is estimated to have grown by 4.95, physician spending by 5.4% and drug spending by 8.1%.  Out-of-pocket spending rose by 2.6%, implying that third-party payers picked up most of the overall spending increase, but the authors expect the rate of increase to accelerate in future years as cost-shifting spreads in private plans.  Unit price rises were muted, only .8%, but acceleration is expected.  Physician unit prices actually declined in 2015, at -1.1%, largely due to Medicaid reimbursement reductions, but I think it would be extremely foolish not to assume that prices for all services will begin to rise more rapidly. But the price stability means most spending growth was due to greater utilization. Per enrollee spending increased 3.1% for private health insurance, 2.4% for Medicare and 5.7% for Medicaid.  Private insurance and Medicare per enrollee costs are expected to grow more rapidly to 2025, while Medicaid increases slow.  Government and private (business and individual) spending are projected to rise at about the same rate.  The financial pressures on taxpayers and individuals from health costs look set to continue for a long time and real reform needs to be considered to address this issue.

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