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CMS Actuaries: Slightly Higher Healthcare Inflation Is Back

July 29, 2015
by Mark Hagland
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After averaging a relatively low 4.0 percent between 2008 and 2013, U.S. national healthcare spending is now projected to have grown 5.5 percent, and to have reached $3.1 trillion in 2014, according to actuaries for the Medicare program, in the Centers for Medicare & Medicaid Services (CMS). Further, according to that team of actuaries, led by Sean P. Keehan, an economist in the Office of the Actuary at CMS, healthcare spending growth is expected to average 5.8 percent during the period 2014-24, culminating in the share of the U.S. gross domestic product spent on healthcare rising from 17.4 percent in 2013 to 19.6 percent in 2024.

Those were among the key findings in an article published July 28 in Health Affairs, “National Health Expenditure Projections, 2014-24: Spending Growth Faster Than Recent Trends.” The authors write that “The outlook on national health spending for the period 2014–24 primarily reflects the effects of the major coverage expansions in the Affordable Care Act (ACA), stronger economic growth relative to the recent past, and the aging of the population. Overall,” they report, “health spending growth is projected to average 5.8 percent during this period, rising to $5.4 trillion by 2024, while growth in nominal gross domestic product (GDP) is expected to average 4.7 percent. As a result, the health spending share of the economy is projected to rise from 17.4 percent in 2013 to 19.6 percent in 2024.” (The actuaries do predict a brief, slight dip to 5.3 percent inflation in 2015.)

The Medicare actuaries further note in the Health Affairs article that, “In the years following the recession and the accompanying modest economic recovery through 2013, growth rates for national health spending remained close to historically low rates near 4 percent. In 2014, however, national health spending is projected to have increased 5.5 percent, the first time growth would exceed 5.0 percent since 2007. This expected acceleration was mostly driven by health insurance coverage expansions under the ACA, as 8.4 million Americans are anticipated to have gained insurance coverage primarily through Medicaid or the new health insurance Marketplaces.”

Though the actuaries describe overall U.S. healthcare inflation as relatively moderate, they predict prescription drug spending to accelerate dramatically. “[P]artly as a result of expensive new treatments for hepatitis C, prescription drug spending is projected to have risen sharply to 12.6 percent in 2014, reaching its highest rate of growth since 2002,” they note. “As a result, the projected acceleration in all other health expenditures (excluding prescription drug spending) is more modest than that in overall health spending: 4.8 percent in 2014, compared to 3.7 percent in 2013. In 2015 the health spending growth rate is expected to decelerate slightly to 5.3 percent, as the effects of the coverage expansions moderate and drug spending growth slows.”

Comparing hospital care spending and “physician and clinical services” spending, the actuaries project that hospital spending will increase from $978.3 billion in 2014 to $1.755 trillion in 2014 (a 79-percent increase during that time), while spending on physician and clinical services will rise from $815.1 billion to $1.374 trillion (representing a 69 percent increase) during that same time period. The overall increase in national healthcare spending, from 3.1 trillion to 5.4 trillion, represents a 74-percent increase in annual healthcare spending.

The Medicare actuaries note that, “Over the eleven-year projection period (2014-24), health spending growth is expected to increase at an average annual rate of 5.8 percent. By 2024, health spending is projected to account for 19.6 percent of GDP, up from 17.4 percent in 2013. These trends,” they write, are in contrast to the experience beginning with the recession and continuing with the modest recovery through 2013, when health spending growth remained at near-historically low rates (averaging 4.0 percent during 2008-13), and the health share of GDP was essentially unchanged. However, a closer look at the recent period suggests that some factors in these years (the impacts of slow income growth), loss of insurance coverage, slow economy-wide and health-specific price growth, and increases in general drug dispensing) are not likely to persist, whereas others (such as the increased prevalence of insurance plans with greater cost-sharing requirements, and various legislative impacts on Medicare payment updates are likely to have more lasting effects)."





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