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U.S. Health Spending Projected To Grow 5.8 Percent Annually
Posted By Chris Fleming On July 28, 2011 @ 8:48 am In Costs and Spending,Elsewhere@ Health Affairs,Following the ACA,Health Professionals,Hospitals,Insurance and Coverage,Medicaid and CHIP,Medicare
All health care spending in the United States is projected to grow at an annual average rate of 5.8 percent for the period 2010 through 2020, 1.1 percentage points faster than expected growth in Gross Domestic Product (GDP). By 2020, health care spending is projected to be 19.8 percent of GDP, nearly one-fifth of economic output, increasing from 17.6 percent in 2010. All health care spending will reach $4.64 trillion in 2020, nearly half of which will come from government sources.
These findings, by economists in the Office of the Actuary at the Centers for Medicare and Medicaid Services (CMS), were released today in a Health Affairs Web First article . The projected growth rate in health care spending is only slightly faster than spending would have been projected to grow in the absence of the Affordable Care Act, which will extend coverage to about 30 million additional Americans. Without the recent health reform legislation, health care spending would have been projected to grow at 5.7 percent annually, one-tenth of a percentage point slower.
The CMS projections, which will also appear in the August issue of Health Affairs, include the agency’s first-ever sector analysis of the expansions in health coverage required by the Affordable Care Act (ACA). A discussion of the projections follows; you can find further discussion in places such as the Associated Press , Bloomberg , CNNMoney , The Hill‘s HealthWatch Blog , Kaiser Health News , Politico , Modern Healthcare , the National Journal , Reuters , the Wall Street Journal , the Washington Times , and the White House Blog .
In 2010, all health care spending in the US is expected to grow at the historically low rate of 3.9 percent, down slightly from a previous historic low of 4.0 percent in 2009. This continued slow pace for growth in health spending primarily reflects the continuing impact of losses in employment and health insurance coverage associated with the recent recession. With growth of GDP of 3.8 percent in 2010, the portion of GDP spent on health care is expected to remain unchanged in that year at 17.6 percent.
In 2014, when private and public health coverage are expanded in accordance with the ACA, health spending is projected to grow by 8.3 percent, compared to 5.5 percent growth in 2013. Many of the newly insured are anticipated to be generally younger and healthier compared to the individuals currently covered by Medicaid and private insurance, and they are expected to devote a greater share of their total health care spending to prescription drugs and physician and other clinical services.
“In 2014, spending on prescription drugs and physician and clinical services will grow quicker than spending on hospital services, reflecting the needs of newly insured Americans, who are expected to be younger and healthier on average than currently insured Americans,” said Sean Keehan, a lead author of the study.
In addition, Keehan and coauthors project a rise in the percentage of total health spending in the US that is paid for with government funds — local, state and federal. “Health spending financed by governments at all levels in the US will increase over the next decade as a result of expansions of health insurance coverage through Medicaid and subsidized private health insurance under the Affordable Care Act, as well as Medicare as more Baby Boomers enter the program,” added Keehan.
The report provides an analysis of how Americans are likely to spend their health care dollars in the coming decade. It contains projections for spending on specific services by different sectors, payers, and sponsors. In addition to examining the effect of national health reform legislation, the report also discusses the impact of a significant reduction in Medicare physician payment that is scheduled under current law and includes the impact of the baby boom generation becoming eligible for Medicare.
This national health spending report updates earlier CMS projections that focused on the decade between 2009 to 2019 (released online  by Health Affairs on September 9, 2010).
None of the projections in this report have been adjusted for inflation, which means that they represent nominal rates of growth in health care spending predicated on nominal rates of GDP growth.
Other Key Findings:
National Health Expenditures:
Health spending in 2020 is projected to reach $4.64 trillion, accounting for 19.8 percent of GDP, nearly one-fifth of economic output, increasing from $2.6 trillion in 2010, or 17.6 percent of GDP.
The annual rate of increase in health spending over the next decade is projected to be 5.8 percent, which is 1.1 percentage points higher than the projected growth in the GDP, resulting in an increase in the percentage of the GDP attributable to health care.
The projected 5.8 percent increase in annual health spending between 2010 and 2020 is a full half-percentage point lower than an earlier CMS projection of 6.3 percent in annual increases between 2009 and 2019. This lower rate of increase primarily reflects lower projections for general inflation.
In the absence of the ACA, projected health spending in the US would have risen slightly more slowly from 2010 to 2020, rising at an annual rate of 5.7 percent instead of the 5.8 percent annual increase that would otherwise have been projected.
Health spending is estimated to have grown in 2010 at the historically low rate of 3.9 percent. This low rate is largely due to slower growth in the use of health services, based on the impact of the recent recession and an associated decrease in the number of Americans with private health insurance coverage, as well as a lower rate of growth in payments to private plans under Medicare.
In 2014, national health spending is projected to grow 8.3 percent, up from 5.5 percent in 2013. This increase is primarily driven by the expansions of private health insurance and public health coverage required by the ACA.
The coverage expansions required by the ACA are projected to increase demand for health care, especially prescription drugs and physician and clinical services.
Spending on prescription medications is projected to increase by 10.7 percent in 2014, 5.1 percentage points and $15.8 billion more than in the absence of the ACA. By 2020, drug spending is projected to account for an 11 percent share of national health spending, up from 10 percent in 2013.
Spending on physician and clinical services is projected to grow by 8.9 percent by 2014, 3.1 percentage points and $17.8 billion more than it would have without the ACA. By 2020, physician and clinical services spending is projected to result in a 19 percent share of national health spending, unchanged from 2013.
Hospital spending is projected to accelerate to 7.2 percent in 2014, 1 percentage point and $8.6 billion higher as a result of the ACA. This change is projected to result in a 30 percent share of national health spending by 2020, one percentage point lower than it would have been in the absence of the ACA.
Highlights by Sponsor
The share of all health spending in the US by the federal government is projected to increase from 27 percent in 2009 to 31 percent in 2020, a 4 percentage point increase in this share over 11 years.
All government (local, state, and federal) health spending is projected to increase to 49 percent by 2020, increasing from 44 percent in 2009, reaching a total of $2.3 trillion, nearly two-thirds of which is expected to be paid for by the federal government.
Although the government share of all health care spending is expected to grow, the projected share for private business will decline from 20 percent in 2014 to 18 percent by 2020. The projected share of household spending on health coverage will not change between 2014 and 2020 and is projected to be 26 percent during this period.
Highlights by Payer
Private Health Insurance
Total private health insurance spending growth is estimated to have remained low in 2010 at 2.6 percent, up from 1.3 percent in 2009. This slower growth is driven by continuing declines in enrollment in private health insurance plans (down 5.1 million in 2010), as a result of the recent recession.
Enrollment in private health insurance is expected to increase by 4 million between 2011-2013, due mostly to the improving economy and to a lesser extent by the ACA’s requirements to extend private health insurance coverage to dependents under age 26 and the establishment of the Pre-Existing Condition Insurance Program.
In 2014, when the major coverage expansions under the ACA commence, growth in private health insurance premiums is expected to increase by 9.4 percent, 4.4 percentage points higher because of the ACA, as an estimated 13.9 million people obtain coverage through private health insurance plans through health exchanges during that year alone.
The ACA’s mandated excise tax on high-cost insurance plans starting in 2018 is expected to result in employers providing enrollees incentives to enroll in plans with lower premiums or higher cost sharing. The excise tax of 40 percent will be applied to costs exceeding $10,200 for individual plans and $27,500 for family plans.
The share of all health care spending in the US that is tied to out-of-pocket spending by individuals is projected to fall from 12 percent in 2009 to 9.6 percent in 2020, lower than the 10.5 percent projected in absence of the ACA. The biggest decrease is expected to be in 2014 when out-of-pocket spending growth is projected to decline by 1.3 percent.
Medicaid spending growth slowed to 7.2 percent in 2010 from a relatively high rate of 9.0 percent in 2009. Medicaid enrollment growth also slowed to 6.0 percent in 2010 from 7.4 percent in 2009 and reflects a gradual economic recovery following the recession.
In 2014, Medicaid spending is projected to increase substantially (20.3 percent) as a result of the expanded eligibility for Medicaid required by the ACA.
By 2020, Medicaid is projected to account for nearly 20 percent of national health spending, up from 15 percent in 2009.
Growth in Medicare spending for 2010 is estimated to slow from 7.9 percent in 2009 to 4.5 percent in 2010. This deceleration affects most of Medicare’s service categories, due in part to an across-the-board reduction in the growth of payments of 3.4 percent for Medicare’s private health plans.
Medicare spending growth through 2013 would slow as a result of the 29.4 percent physician payment rate reduction scheduled for January 1, 2012 as per the Medicare Sustainable Growth Rate formula, although Congress often acts to modify such projected reductions. If these reductions are enacted in 2012, Medicare spending growth is projected to decelerate sharply to 1.7 percent, compared to 5.9 percent in 2011. Consistent with the Medicare trustees report methodology, the Medicare projections are estimated both under current law and an alternative scenario in which physician payment rate updates are based on growth in the Medicare Economic Index (MEI). Under this alternative scenario, Medicare spending growth would instead accelerate in 2012 to 6.6 percent.
Medicare expenditures are projected to grow at an average rate of 6.4 percent per year for 2015 through 2020. Medicare enrollment is projected to grow at an average rate of 2.9 percent per year as the oldest baby boomers continue to reach age 65, which increases the rate of growth in spending. However, these increases are partially offset by the impact of Medicare savings provisions in the ACA, including provisions that call for reduced fee-for-service payments to providers. Medicare’s share of national health spending (20 percent) is projected to remain unchanged during this decade.
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