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The Good News- Bad News Scenario on U.S. Healthcare Spending: Big Numbers, Big Impacts

October 25, 2014
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CMS’s new projections on overall U.S. healthcare spending from 2014 through 2023 are alarming—and they should be

As seems always to be the case in such situations, we as a society are facing a “good news-bad news” scenario around U.S. healthcare spending—in this case, with an intense load of both types of news. So, hold on tight while I throw a bunch of (very important) numbers at you.

The October issue of Health Affairs carries a very significant article, “National Health Expenditure Projections, 2013-23: Faster Growth Expected With Expanded Coverage and Improving Economy,” written by a large group of actuaries in the Office of the Actuary at the federal Centers for Medicare and Medicaid Services (CMS): Andrea M. Sisko, Sean P. Keehan, Gig A. Cuckler, Andrew J. Madison, Sheila D. Smith, Christian J. Wolfe, Devin A. Stone, Joseph M. Lizonitz, and John A. Poisal.

This is what the abstract of their article says: “In 2013 health spending growth is expected to have remained slow, at 3.6 percent, as a result of the sluggish economic recovery, the effects of sequestration, and continued increases in private health insurance cost-sharing requirements. The combined effects of the Affordable Care Act’s coverage expansions, faster economic growth, and population aging are expected to fuel health spending growth this year and thereafter (5.6 percent in 2014 and 6.0 percent per year for 2015-23). However, the average rate of increase through 2023 is projected to be slower than the 7.2 percent average growth experienced during 1990-2008. Because health spending is projected to grow 1.1 percentage points faster than the average economic growth during 2013-23,” the authors write, “the health share of the gross domestic product is expected to rise from 17.2 percent in 2012 to 19.3 percent in 2023.”

Now, more numbers: this year, the CMS actuaries estimate, total U.S. healthcare expenditures will have been $3.056.6 trillion, versus $2.894.7 trillion in 2013. So, guess what, folks? We’ve just gone over the $3 trillion mark in annual healthcare spending in this country. What’s more, in Exhibit 1 of the article, the actuaries share a bucketload of additional numbers, and that top-line number of overall spending is a “wow”: from $3.056.6 trillion in 2014 to $3.207.3 in 2015 to $4.042.5 in 2019, to $5.158.8 trillion in 2023. That’s right: healthcare will cost our country more than five trillion dollars a year—and will consume 19.3 percent of our gross domestic product—within less than ten years from now.

I remember in the “olden days” of the 1990s when some observers said that our entire economy and society would fall apart if U.S. healthcare spending went over the $2 trillion mark or over 15 percent of GDP. Well, guess what? We’ve blown right past those markers, and are on a path towards devoting more than one-fifth of the entire U.S. economy to the delivery of healthcare services and functions. Yes. Please say “wow.” Thank you.

Now, remember when I said that I would discuss a “good news-bad news” scenario? I bet you’re wondering where the good news went. So, here it is. As the authors note, “This projected average health spending growth trend is faster relative to growth in recent history. However, it is comparatively slower than the 7.2 percent average annual growth experienced in1990-2008, which was 2.0 percent points faster than growth in GDP. The 5.7 percent annual growth in overall health spending through 2023 is occurring as additional baby boomers continue to age into Medicare and as the number of uninsured people is projected to fall from roughly 45 million 2012 to about 23 million in 2023.”

There are actually several good-news elements to that statement. First of all, thanks to the passage and implementation of the Affordable Care Act, tens of millions more Americans are obtaining access to affordable health insurance—an extremely important accomplishment for our society. What’s more, in 2012 and 2013, healthcare inflation fell to 3.7 percent and 3.6 percent from the 7.1 percent in 2008. That is very significant.

Of course, part of the cause has to do with overall economic trends of the past few years, and will likely evaporate over time. As the authors note, “The recent period is marked by a four-year historically low rate of health spending growth, which was primarily attribute to the sluggish economic recovery and constrained state and local government budgets following the 2007-09 recession.” With regard to the federal government’s operations, sequestration has had an impact here, and sequestration continues, but as the authors point out, “[E]conomic growth during the next decade is projected to be faster than it has been since 2007,” and, “These more favorable economic conditions are expected to result in greater demand for healthcare goods and services; increases in health coverage; and faster rates of health spending growth, particularly for private health insurance. However,” they add, “these rates of increase are expected to be dampened somewhat by the slower growth in Medicare payment rates mandate by the ACA and the ongoing trend toward higher cost-sharing requirements for the privately insured.”