The Good News- Bad News Scenario on U.S. Healthcare Spending: Big Numbers, Big Impacts | Mark Hagland | Healthcare Blogs Skip to content Skip to navigation

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.”

There was also good news in that, as the authors point out, "Medicare spending growth... slowed in 2013. It decelerated from 4.8 percent to 3.3 percent because of budget sequestration requirements; other payment adjustments, such as multiple procedure payment reductions for physician services; and slower growth in utilization across all services." But even that good news around recent Medicare spending trends will soon be rerversed, the authors note. In the coming 2016-2023 period, the actuaries write, "Medicare expenditure growth is projected to accelerate to a projection-period high of 7.9 percent in 2020. This is a result of continued enrollment in Medicare by the baby-boom generation and faster per-beneficiary spending growth as this population ages."

As for hospital services specifically, the authors note that “Total hospital spending growth is expected to have slowed from 4.9 percent in 2012 to 4.1 percent in 2013 and to have reached $918.8 billion. Because of the effects of sequestration and slower growth in utilization,” they write, “Medicare hospital spending growth is expected to have slowed from 4.5 percent in 2012 to 2.5 percent in 2013. However,” they caution, “increased use of hospital services attributable to the ACA’s coverage expansions are projected to result in accelerating growth in hospital spending of 4.5 percent in 2014 and 5.1 percent in 2015. The projected rate of hospital spending growth generally increases after that point, reaching a peak of 6.7 percent in 2020 and then averaging 5.4 per year through 2023.” At that point, annual hospital expenditures across U.S. healthcare will total $1.637.7 trillion a year.

The bottom line on all the numbers? As the authors write in their conclusion “Growth rates for both the economy and health spending have been slow. However the health share of GDP has remained relatively constant since 2009 and is expected to be 17.2 percent in 2013… The period in which healthcare has accounted for a stable share of economic output is projected to end in 2014, primarily because of the coverage expansion of the ACA. It is anticipated that by 2017, once the mostly one-time transition effects of expanded coverage have fully transpired, the health share of GDP will increase, albeit at a slower rate than its historical average, as an improving economy and the aging of the baby-boom generation lead to faster health spending growth.”

What’s clear in all this is that we are about to go over the healthcare spending cliff, as a society, and no one factor is to blame. But these numbers should be frightening to anyone who’s paying attention: this is a healthcare spending juggernaut that is barreling ahead despite every effort to rein it in.

That doesn’t mean that any efforts to constrain costs should be abandoned or lightened; indeed, every single effort at accountable care, value-based purchasing, care management, patient engagement, everything—needs to be intensified and accelerated in the wake of this numbers revelation, and what we already knew about healthcare spending in the U.S.

If anything, this Health Affairs article should be shared with everyone in healthcare—physicians, nurses, pharmacists, and all other clinicians; clinician and executive leaders; frontline non-clinician staff; anyone who has anything to do with the U.S. healthcare system—which is millions of people in this country.

And healthcare IT leaders and managers will need to step up to the plate, too, as all the clinical and operational transformation that needs to take place to optimize our healthcare system will require their intensive efforts to help move the needle via data and information gathering, sharing, analysis, and use in optimizing processes across the healthcare spectrum. This set of predictions should be seen as the wakeup call that it is, and should help guide discussions going forward across the U.S. healthcare system. The status quo is simply unacceptable; and all of us will have to play our part (and that includes all stakeholder groups, including purchasers, payers, providers, and consumers of healthcare) in bending this enormous cost curve facing our healthcare economy—and our society—going into the middle of the second decade of this century.

 

 

 

 

 

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