The Costs of Longevity

National Health Expenditure Projections 2014-2024

Spending growth faster than recent trends

The following is an abstract of the annual estimation of health care costs for the coming decade,written by the actuaries from the Centers for Medicare and Medicaid Services and presented by Health Affairs. Reprinted with permission.

 

Health spending growth in the United States is projected to average 5.8 percent for 2014–24, reflecting the Affordable Care Act’s coverage expansions, faster economic growth, and population aging. Recent historically low growth rates in the use of medical goods and services, as well as medical prices, are expected to gradually increase.

However, in part because of the impact of continued cost-sharing increases that are anticipated among health plans, the acceleration of these growth rates is expected to be modest. The health share of US gross domestic product is projected to rise from 17.4 percent in 2013 to 19.6 percent in 2024.

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, 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.

Post-Recession Growth

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. Additionally, partly 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.

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. In the middle of the projection period, health spending growth rates are anticipated to average above 5 percent, as the expansion-related enrollment increases are projected to wane, while other factors become increasingly important as drivers of health spending trends. Health care prices during the period 2016–18 are expected to rebound from recent historically low growth rates, contributing to faster growth in projected health care costs.

...as the baby-boomer generation continues to age into eligibility for Medicare and as the Medicaid population ages, it is projected that nearly four out of every ten health care dollars will be spent on people enrolled in one or both of these two largely government-funded programs, in which per enrollee costs tend to be higher than average

At the same time, in Medicare, per beneficiary inpatient hospital and physician utilization rates are projected to return to levels that are between the low rates experienced in recent history and the longer-term historical norms relative to recent history, resulting in faster growth in spending per beneficiary.1

By the latter stages of the projection period, growth in per enrollee private health insurance premiums is expected to accelerate, growing more than 5 percent annually, on average, in lagged response to more robust economic growth.

Moreover, as the baby-boomer generation continues to age into eligibility for Medicare and as the Medicaid population ages, it is projected that nearly four out of every ten health care dollars will be spent on people enrolled in one or both of these two largely government-funded programs, in which per enrollee costs tend to be higher than average.

As a result, national health spending growth rates are projected to be highest (above 6 percent) during the latter years of the projection period, and the share of total health expenses paid for by federal, state, and local governments is projected to increase to almost half. Notably, while these rates of growth represent the highest in the projection period, they are expected to be substantially lower than the average rates that were observed in the three decades prior to the recession.

Model & Assumptions

The national health expenditure projections are developed using actuarial and econometric modeling methods, as well as judgments about future events and trends that influence health spending.2

The projections are based on economic and demographic assumptions in the 2015 Medicare Trustees Report, updated to reflect the latest macroeconomic data.1,2 The Centers for Medicare and Medicaid Services (CMS) Office of the Actuary Health Reform Model was used to determine the major impacts of the ACA’s expansion-related provisions on national health spending and insurance enrollment.2,3 The health expenditure projections presented here are consistent with the 2015 Medicare Trustees Report, which incorporates recently enacted legislation that affects future Medicare physician fee schedule updates.1,4

These projections are inherently subject to substantial uncertainty related not only to the continuing effects of the ACA but also to variable macroeconomic conditions. Indirect effects of the ACA on the market for health care remain highly uncertain, including the behavioral response to reform on the part of consumers, insurers, employers, and providers throughout the projection period.

Furthermore, with six years of historically low growth in health spending, questions have persisted about whether or not a more fundamental change is occurring in the health sector, notwithstanding coverage expansions.

The Office of the Actuary’s projection approach, particularly as it relates to spending through private insurance, is based on analysis of more than fifty years of National Health Expenditure Accounts data that show a lagged, long-term relationship to economic (income) growth.2 Recent health spending trends, while low by historical standards, are consistent with expectations inferred from economic trends in the preceding periods that recently peaked in 2002 and reached a trough in 2013. Thus, health spending growth is likely to accelerate in response to improvements in economic conditions that are projected over the coming decade.5

Read the complete report here.