CMS Actuaries: Economic, Demographic Factors Driving Healthcare Spending Growth | Healthcare Informatics Magazine | Health IT | Information Technology Skip to content Skip to navigation

CMS Actuaries: Economic, Demographic Factors Driving Healthcare Spending Growth

February 14, 2018
by Heather Landi
| Reprints

Although considerable debate and uncertainty regarding the future of health care policy remain, under current law, the outlook for national healthcare spending over the next decade is expected to be driven primarily by fundamental economic and demographic factors, such as enrollment shifts from private health insurance to Medicare related to the aging of the population, according to the Office of the Actuary at the Centers for Medicare & Medicaid Services (CMS).

New estimates released today from the independent CMS Office of the Actuary, and published online in Health Affairs, project an average annual rate of national health spending growth of 5.5 percent for 2017 through 2026, and health spending will reach $5.7 trillion by 2026. This projected growth will outpace average projected growth in gross domestic product (GDP) by 1.0 percentage point. As a result, the health share of the economy is projected to climb to 19.7 percent by 2026—up from 17.9 percent in 2016.

During a CMS press call Wednesday afternoon to discuss the findings, Gigi Cuckler, a lead author of the Health Affairs study and an economist at the National Health Statistics Group with the Office of the Actuary, said that the economic and demographic trends driving the projected spending growth include trends in disposable personal income, increases in prices for medical goods and services, and shifts in enrollment from private health insurance to Medicare that result from the continued aging of the baby-boom generation into Medicare eligibility.

“Moreover, it is expected that employers, insurers, and other payers will continue to work to manage the use and cost of health care goods and services,” Cuckler said.

Also during the press call, a reporter asked the CMS actuaries and study authors what role value-based care and payment models play in the health expenditure study findings. Cuckler repsonded, "In terms of the impacts of new payment models, and I’m assuming we’re talking about some of the payment models that are underway for Medicare, I would say that we’re monitoring these new payment models. However, it’s still too early to determine some of the longer-term impacts for many of them. We have observed certified program savings for a couple of different programs, although the savings have not been very substantial. At this point, it’s something that we’re monitoring, but it’s too early to tell if there’s going to be a substantial long-term impact."

National health spending growth is projected to have grown 4.6 percent in 2017, reaching nearly $3.5 trillion, up slightly from 4.3 percent growth in 2016. CMS actuaries project that national health spending growth will increase to 5.3 percent in 2018, the result of accelerating growth in Medicare spending, slightly faster growth in prices for healthcare goods and services, and increases in premiums for insurance purchased through the Marketplaces, the report stated.

The projected average annual growth rate of 5.5 percent for 2017–2026 is somewhat higher than the rate for 2008–2013 (3.8 percent per year), when the most recent recession and modest recovery contributed to historically slow average annual growth in health spending, and for 2014–2016 (5.0 percent per year), when the implementation of the Affordable Care Act (ACA) coverage expansions in 2014 was the primary influence, according to the study authors.

“Despite the faster growth projected over the next decade, overall national health spending growth is not anticipated to reach rates experienced in the period before the last recession (7.3 percent per year for 1990–2007),” the study authors wrote.

The CMS economists who co-wrote the study also stated that spending growth in Medicare and Medicaid is a substantial contributor to the faster projected overall growth in national health spending through 2026. “Over the period, projected increases in the use and intensity of care contribute to rising growth in Medicare per enrollee spending relative to recent nearly historic lows. In addition, Medicare enrollment is expected to continue to reflect the aging of the baby-boom generation into the program. For Medicaid, aging is anticipated to increase the share of enrollment accounted for by relatively more expensive aged and disabled beneficiaries who tend to have disproportionately higher use and intensity of care provided relative to non-aged or nondisabled beneficiaries.,” the CMS actuaries who wrote the study stated.

The report also found that by 2026, federal, state and local governments are projected to finance 47 percent of national health spending, up from 45 percent in 2016. This expected higher share of spending by governments reflects, in part, the impact of shifting demographics including the continued transition of the baby-boom generation into Medicare.

In contrast, the projected share of health spending sponsored by businesses, households, and other private revenues is expected to fall 2 percentage points over the projection period, from 55.0 percent in 2016 to 53.0 percent in 2026.

Over the 2017–2026 period, CMS actuaries project that personal health care spending growth will average 5.5 percent per year, with average growth in prices (2.5 percent) and use and intensity (1.7 percent) expected to account for roughly 75 percent of this growth. Population growth and changing demographics account for the remainder of the projected average annual growth.

Other key points from the study include:

  • Among the major payers for healthcare over the 2017-2026 period, Medicare is projected to experience the most rapid annual growth at 7.4 percent, largely driven by enrollment growth and faster growth in utilization from recent near-historically low rates.
  • Compared to 2018, Medicare spending is projected to grow 2.0 percentage points faster on average during 2019–2020 at 8.0 percent, reflecting accelerated physician incentive payments under the Medicare Access and CHIP Reauthorization Act (MACRA) of 2015 and projected growth in the use and intensity of Medicare goods and services provided.
  • From a payer perspective, Medicaid is projected to average 5.8 percent annual growth over 2017-2026, which is slower than the average observed for 2014-2016 of 8.3 percent, when the major impacts from the ACA’s expansion took place.
  • Medicaid spending growth is projected to increase 4.0 percentage points more rapidly in 2018, at a projected rate of 6.9 percent, due primarily to the growth in health insurance spending as a result of smaller risk-mitigation recovery payments from the previous year.
  • Private health insurance spending is projected to average 4.7 percent over 2017-2026, the slowest of the major payers, reflecting low enrollment growth and downward pressure on utilization growth influenced by: lagged impact of slowing growth in income in 2016 and 2017, increasing prevalence of high-deductible health plans, and to a lesser extent, repeal of the penalty associated with individual mandate.
  • Prescription drug spending growth is anticipated to accelerate from 2.9 percent in 2017 to 6.6 percent in 2018, based on the expectation that the dollar value of drugs losing patent protection is less than in previous years. Among the major sectors, prescription drugs are projected to experience the fastest average annual spending growth over 2017–26 (6.3 percent per year), which is largely attributable to increased spending on specialty drugs.
  • The number of uninsured people is projected to increase to 32.7 million by 2020, rising from 30.0 million projected for 2018.

 

The study authors concluded that though future health policy remains an area of significant uncertainty, these projections illustrate that under current law, economic and demographic trends are expected to be key drivers of projected growth in national health spending and enrollment over the next decade. While this projected average annual growth rate is more modest than the 7.3 percent rate observed over the longer-term history before the last recession (1990–2007), it is more rapid than had been experienced in 2008–16 (4.2 percent).

“Today’s report from the independent CMS Office of the Actuary shows that healthcare spending is expected to continue growing more quickly than the rest of the economy,” CMS Administrator Seema Verma said in a prepared statement. “This is yet another call to action for CMS to increase market competition and consumer choice within our programs to help control costs and ensure that our programs are available for future generations.”

Get the latest information on Health IT and attend other valuable sessions at this two-day Summit providing healthcare leaders with educational content, insightful debate and dialogue on the future of healthcare and technology.

Learn More

Topics

News

Advocate Aurora Health, Foxconn Plan Employee Wellness, “Smart City,” and Precision Medicine Collaboration

Wisconsin-based Advocate Aurora Health is partnering with Foxconn Health Technology Business Group, a Taiwanese company, to develop new technology-driven healthcare services and tools.

Healthcare Data Breach Costs Remain Highest at $408 Per Record

The cost of a data breach for healthcare organizations continues to rise, from $380 per record last year to $408 per record this year, as the healthcare industry also continues to incur the highest cost for data breaches compared to any other industry, according to a new study from IBM Security and the Ponemon Institute.

Morris Leaves ONC to Lead VA Office of Electronic Health Record Modernization

Genevieve Morris, who has been detailed to the U.S. Department of Veterans Affairs (VA) from her position as the principal deputy national coordinator for the Department of Health and Human Services, will move over full time to lead the newly establishment VA Office of Electronic Health Record Modernization.

Cedars-Sinai Accelerator Program Presents Fourth Class of Startups

The Cedars-Sinai Accelerator, a program that helps entrepreneurs bring their innovative technology products to market, has brought in nine more health tech startups as part of its fourth class.

DirectTrust Adds Five Board Members

DirectTrust, a nonprofit organization that support health information exchange, announced the appointment of five new executives to its board of directors.

Analysis: Many States Continue to Have Restrictive Telemedicine Policies

State Medicaid programs are evolving to accelerate the adoption of telemedicine models, this evolution is occurring more quickly in some states than others, according to a recent analysis by Manatt Health.