Health spending for the next decade

March 25, 2020

Topics: Quote of the Day

By Sean P. Keehan, et al, CMS Office of the Actuary
Health Affairs, March 24, 2020

Abstract

National health expenditures are projected to grow at an average annual rate of 5.4 percent for 2019–28 and to represent 19.7 percent of gross domestic product by the end of the period. Price growth for medical goods and services is projected to accelerate, averaging 2.4 percent per year for 2019–28, which partly reflects faster expected growth in health-sector wages. Among all major payers, Medicare is expected to experience the fastest spending growth (7.6 percent per year), largely as a result of having the highest projected enrollment growth. The insured share of the population is expected to fall from 90.6 percent in 2018 to 89.4 percent by 2028.

• $4,014.2 billion – National health expenditures 2020
• $6,192.5 billion – National health expenditures, projected 2028

National health spending is projected to increase 5.4 percent per year, on average, for 2019–28, compared to a growth rate of 4.5 percent over the past three years (2016–18). The acceleration is largely due to expected faster growth in prices for medical goods and services (2.4 percent for 2019–28, compared to 1.3 percent for 2016–18). Growth in gross domestic product (GDP) during the projection period is expected to average 4.3 percent. Because national health spending growth is expected to increase 1.1 percentage points faster, on average, than growth in GDP over the projection period, the health share of GDP is expected to rise from 17.7 percent in 2018 to 19.7 percent in 2028.

Although growth in economywide prices is projected to accelerate during 2019–28, growth in personal health care prices is expected to increase more quickly, partly reflecting faster expected growth in the wages paid to health care workers.

Over the projection period, Medicare is expected to have the highest spending growth among the major payers of health care each year and on average (7.6 percent), largely reflecting the continued shift of the baby-boom generation out of private health insurance and into Medicare.

The modest rate of growth in private health insurance enrollment is influenced both by the impact of the repeal of the Affordable Care Act (ACA) individual mandate in the early part of the projection period and by the expectation that the working-age population will continue the recent trend of enrolling in private health insurance (primarily employer-sponsored insurance) at lower rates. As a result, by 2028 the insured share of the population is expected to fall to 89.4 percent (from 90.6 percent in 2018).

The share of health care spending financed by federal, state, and local governments is expected to increase by 2 percentage points during 2019–28, reaching 47 percent in 2028. The increase is primarily due to the federal government’s share, which is projected to grow from 28 percent in 2018 to 31 percent by 2028, driven by faster growth in Medicare spending related to increasingly higher enrollment. The projected business and household share is expected to fall from 55 percent in 2018 to 53 percent in 2028.

Conclusion

As it has over the past several decades, health spending is expected to grow, on average, more rapidly than the rest of the economy in each year of the projection period through 2028 and to consume an increasingly larger share of GDP. Thus, health spending is projected to reach 19.7 percent of GDP in 2028, even with a modest projected decline in the insured share of the US population. Anticipated increases in inflation for medical goods and services are key drivers of accelerating national health spending growth, since the use and intensity of services are expected to grow more slowly than in recent years—in part because the share of the population with insurance coverage is projected to decline slightly. The government is projected to pay a larger share (nearly half) of the nation’s total health bill by 2028, as the baby boomers continue aging into Medicare and the program’s beneficiaries consume $1 out of every $4 spent on health care. Policy makers and other stakeholders will undoubtedly continue to monitor these trends and their implications for the health sector, federal and state budgets, and the economy as a whole.

(Given the timing of publication and the uncertainty associated with the impacts of the COVID-19 pandemic, those impacts are not reflected in the estimates.)

https://www.healthaffairs.org…

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Comment:

By Don McCanne, M.D.

Two important take-home points from this annual report from CMS Office of the Actuary: 1) Health care spending will continue to increase at a rate greater than the growth of the GDP, comprising 19.7% in 2028, and 2) The percentage uninsured will increase from 9.4% in 2018 to 10.6% in 2028.

Thus the Affordable Care Act has fallen short of the goals of reform, especially when you consider all of the other deficiencies of our health care financing system that will remain in place (profound administrative waste, rampant underinsurance, restrictive provider networks, job lock with employer-sponsored plans, etc., etc.).

Of course, the system could be changed in the next decade. Since the Republicans have been unable to come up with a replacement plan for the Affordable Care Act, it is likely that not much would happen under their control. It now appears that, if the Democrats were to gain control, a public option might be added, but that would have very little impact on the financing system at large. The public option would be only one more administratively-complex player added to our fragmented, dysfunctional system of financing health care.

Of course we don’t know yet what COVID-19 will do, but it may well have a major impact on the health care delivery system and its financing. The health and economic consequences could jar the minds of the political and policy communities such that it is possible that they may regret that we did not have in place a well designed, single payer improved Medicare for All program. Imagine if we enacted and implemented such a system what the following 10 year projection by the Office of the Actuary would be. Pretty good, I’d say.

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