New estimates released today from the Office of the Actuary at the Centers for Medicare and Medicaid Services (CMS) project an average rate of national health spending growth of 5.6 percent for 2016–25, outpacing average projected growth in gross domestic product (GDP) by 1.2 percentage points. As a result, the health share of the economy is projected to climb to 19.9 percent by 2025—up from 17.8 percent in 2015. These projections are constructed using a current-law framework and do not assume potential legislative changes over the projection period.
Growth in national health spending is expected to be driven by projected increases in medical prices from a recent historic low of 0.8 percent in 2015, to nearly 3.0 percent by 2025. Growth in the use and intensity of medical services, however, is projected to slow relative to that experienced in 2014 and 2105, as the impacts of the Affordable Care Act’s coverage expansion wane and enrollment growth in Medicaid and private insurance slows. Changes in the age and sex distribution of the population are projected to consistently put upward pressure on growth throughout the projection period, contributing an average of about 0.5 percentage point to growth per year.
Every year the CMS Office of the Actuary releases an analysis of how Americans are expected to spend their health care dollars in the years ahead. The projected average growth rate for 2016-25 (5.6 percent) reflects the latest expectations from the Office of the Actuary and updates its 2016 report, published last year in Health Affairs.
The new findings appear as a Health Affairs Web First article. The study will also be published in the journal’s March 2017 issue, to be released Monday, March 6, at 4:00 p.m. ET.
“After an anticipated slowdown in health spending growth for 2016, we expect health spending growth to gradually increase as a result of faster projected growth in medical prices that is only partially offset by slower projected growth in the use and intensity of medical goods and services,” says Sean Keehan, the study’s first author. “Irrespective of any changes in law, it is expected that because of continued cost pressures associated with paying for health care, employers, insurers, and other payers will continue to pursue strategies that seek to effectively manage the use and cost of health care goods and services.”
The first two years of the projection period are expected to have the slowest health spending growth rates (4.8 percent in 2016 and 5.4 in 2017), as Medicaid and private health insurance spending growth slow and Medicare spending growth remains low. For 2018 and beyond, Medicare and Medicaid expenditures are expected to grow faster than in the 2016-17 period, and more rapidly than private health insurance spending. Keehan and his coauthors site several reasons for this. First, the use of Medicare services is expected to increase from its recent historical lows. Second, the Medicaid population mix will trend more toward older, sicker, and more costly beneficiaries. Third, baby boomers will continue to age into Medicare, with some dropping private insurance as a result. And finally, growth in the demand for health care for those with private insurance is expected to slow as enrollees face gradually rising relative health care prices and slowing income growth.