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A Ten-year Projection of Health Spending

By February 26, 2019Commentary

CMS’ Office of the Actuary actually has a pretty good track record on forecasting national health spending.  Every year they release a ten-year projection, which includes the past year, so the one for 2018 to 2027 is out.   (CMS Report)   The not so good news is that OA is forecasting that health spending will reach $6 trillion by 2027, an average annual rate of growth of 5.5% and .8% faster than GDP growth, which means health spending will become an ever-bigger part of the economy, which may or may not be a bad thing.  It all depends on the outcomes of that spending.  Let me just point out one little nugget in this report that should be attended to–when the individual mandate was repealed and when people were talking about repealing all of the reform law, the Congressional Budget Office forecast that something like 20 million people would lose coverage.  Uhh, not so fast, the OA says it is maybe a couple of million.  Also notable, price growth is projected to accelerate to about 2.5% for this period, compared to 1.1% for 2014 to 2017.  Personally, I think that is still low, hospitals and other providers aren’t going to be able to put up with Medicare and Medicaid reimbursement levels for much longer.   Medicare and Medicaid expenditures are anticipated to rise more rapidly over the ten-year forecast period, accounting for much of the total spending increase.

Medicare spending is projected to have risen 5.9% in 2018 and to be 7.1% in 2019 and then grow 7.6% per year over the rest of the period.  That is partly due to large increases in enrollment and partly due to assumptions that reimbursement levels will have to rise.  Medicaid spending growth will increase 2.2% in 2018 and 4.8% in 2019, with the higher trend due to expansion of Medicaid in 5 states.  For the rest of the period, Medicaid will increase at 6% per year, due to more and more expensive enrollees.  So let me interrupt with another editorial comment:  the states simply cannot afford this, particularly when the next economic downturn hits; and there will be a reduction in eligibility.  Private insurance rose at 4.5% in 2018, according to these authors, and will slow to 3.3% in 2019, partly because of an anticipated decline in enrollment due to the above-mentioned repeal of the individual mandate.  After than growth is expected to average 5.1% a year.  None of this is good news for any payer or more importantly, for the taxpayer or consumer.  But, again according to the report, out-of-pocket spending rose 3.6% in 2018, will rise 4.8% in 2019 and will rise 5% per year to 2027, so slower than most payer increases.  On a per-person basis, this is even lower, but still not pleasant for the average consumer.

Drug spending will have risen 3.3% in 2018 and will grow 4.6% in 2019, largely due to utilization increases.  After that it increases to 6.1%.  Hospital spending rose 4.4% in 2018 and will grow 5.1% in 2019 and 5.7% thereafter.  Physician spending is expected to rise in a similar range.  As I said above, it is hard to just say it is bad to see health spending rise faster than economic growth.  People want money spent on their health, especially if it can be other people’s money.  And it may be that a lot of the spending results in real improvements in quality of life and even productivity.  People working in health care tend to make pretty good wages, so that is a not-insignificant economic contribution.  But for many consumers, especially if you aren’t Medicaid eligible, there is substantial out-of-pocket pain connected with health care, and that means this will continue to be a potent political issue.

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