CMS report: Health spending projected to have grown 4.8% in one year

National health expenditure growth is expected to average 5.6% annually from 2016 to 2025, according to a report published by Health Affairs and authored by the Centers for Medicare & Medicaid Services’ Office of the Actuary. These projections are constructed using a current-law framework and do not assume potential legislative changes over the projection period.

National health spending growth is projected to outpace projected growth in Gross Domestic Product (GDP) by 1.2 percentage points. As a result, the report also projects the health share of GDP to rise from 17.8% in 2015 to 19.9% by 2025.

Growth in national health expenditures over this period is largely influenced by projected faster growth in medical prices compared to recent historically low growth. This faster expected growth in prices is projected to be partially offset by slowing growth in the use and intensity of medical goods and services.

According to the report, for 2016, total health spending is projected to have reached nearly $3.4 trillion, a 4.8% increase from 2015. The report also found that by 2025, federal, state and local governments are projected to finance 47% of national health spending, a slight increase from 46% in 2015.

“After an anticipated slowdown in health spending growth for 2016, we expect health spending growth to gradually increase as a result of faster projected growth in medical prices that is only partially offset by slower projected growth in the use and intensity of medical goods and services,” said Sean Keehan, the study’s first author. “Irrespective of any changes in law, it is expected that because of continued cost pressures associated with paying for health care, employers, insurers, and other payers will continue to pursue strategies that seek to effectively manage the use and cost of health care goods and services.”

Additional findings from the report

Total national health spending growth

Growth is projected to have been 4.8% in 2016, slower than the 5.8 % growth in 2015, as a result of slower Medicaid and prescription drug spending growth.

In 2017, total health spending is projected to grow by 5.4%, led by increases in private health insurance spending. National health expenditure growth is projected to be faster and average 5.8% for 2018-2025 largely due to expected faster spending growth in both Medicare and Medicaid.

Medicare

Medicare spending growth is projected to have been 5% in 2016 and is expected to average 7.1% over the full projection period 2016-2025. Faster expected growth after 2016 primarily reflects utilization of Medicare covered services increasing to approach rates closer to Medicare’s longer historical experience.

This results in Medicare spending per beneficiary growth of 4.1% over 2016-2025, compared to 1.6% growth for 2010-2015.

Private health insurance

Spending growth is projected to have slowed from 7.2% in 2015 to 5.9% in 2016, a trend that is related to slower growth in private health insurance enrollment. Spending growth is projected to increase to 6.5% in 2017, due in part to faster premium growth in Marketplace plans related to previous underpricing of premiums and the end of the temporary risk corridors.

Medicaid

Projected spending growth slowed significantly in 2016 to 3.7%, down from 9.% in 2015, largely reflecting slower growth in Medicaid enrollment. Spending growth is expected to accelerate and average 5.7% for 2017-2025 as projected per-enrollee spending growth rises over that timeframe. Underlying the faster per enrollee growth is the increasingly larger share of the Medicaid population who are aged and disabled and who tend to use more intensive services.

Medical price inflation

Medical prices are expected to increase more rapidly after historically low growth in 2015 of 0.8% to nearly 3% by 2025. This faster projected growth in prices is influenced by an acceleration in both economy-wide prices and medical specific prices and is projected to be partially offset by slowing growth in the use and intensity of medical goods and services.

Prescription drug spending

Drug spending growth is projected to have been 5% in 2016, following growth of 9% in 2015, mainly due to slowing use of expensive drugs that treat Hepatitis C. Growth is projected to average 6.4% per year for 2017-2025, influenced by higher spending on expensive specialty drugs.

Insured share of the population

The proportion of the population with health insurance is projected to increase from 90.9% in 2015 to 91.5% in 2025.