Projections of Future Health Spending

By February 20, 2018 Commentary

Every year the actuaries at CMS issue an updated projection of the next ten years health spending.  It is a thankless task, especially with so many moving parts created by health reform, etc., and they aren’t always very accurate even a couple of years out, but it is worth reviewing to see potential trends.   (HA Article)   Primary factors that are identified as affecting spending are trends in disposable personal income, increases in prices for health services and products and a shift of enrollment to Medicare as the population ages.  National health spending is expected too average 5.5% per year from 2017 to 2026, reaching $5.7 trillion.  That is nominal dollars, but still over the nominal GDP growth of 4.5% in the same period.  It is also higher than spending increases in the last few years, which were likely muted by the after-effects of the recent recession.  Medicare and Medicaid spending are each projected to nearly double during this period, adding even more strain to government budgets.  Out-of-pocket and private insurance spending are expected to have somewhat lower growth rates.  Medical prices are projected to rise 2.5% per year, up from recent experience, and prices will be the largest contributor to spending growth.  Use and intensity of treatments is projected to be relatively stable, as are the impacts of population growth and age/sex mix.  Prescription drugs will have the highest rate of growth, 6.3% per year, as both utilization and prices climb.  Home health care and medical devices and equipment will also be outsized contributors to spending increases.  The percent of the population with insurance is expected to decline slightly, from 91% currently to 89% by 2026, due to elimination of the individual mandate.  It seems to me that the largest risks to the forecast are more rapid inflation, both generally and specific to health care, and the impact of very expensive new therapies, primarily cell-oriented ones which are just beginning to reach the market.  Even if this projection is accurate, it reflects an ongoing national issue of who is going to pay these increased costs and how they can be further moderated.

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