Health-care Costs: Slow (but Steady) Growth Ahead

Twitter icon
Facebook icon
LinkedIn icon
e-mail icon
Google icon

As citizens and the media debate the cost and growing pains associated with the Patient Protection and Affordable Care Act (PPACA), Cuckler et al¹ (at the CMS Office of the Actuary) predict that aggregate health-care spending will grow at an average annual rate of 5.8% from 2012 to 2022, outpacing the projected growth rate of the US gross domestic product (GDP) by 1%. In 2022, nearly one-fifth of the GDP (19.9%) will be spent on health care, they estimate. This increase, according to a detailed economic forecast¹ published in the October 2013 issue of Health Affairs, is attributed (in part) to the escalating enrollment in Medicare of the aging baby-boom generation. This population will require more (and more expensive) health-related services. Another factor cited by the authors is the impact of the implementation of the PPACA. By 2022, an additional 30 million people are expected to have health insurance. The analysis predicts that cumulative health spending, by this date, will have increased $621 billion beyond the estimated $2.8 trillion spent in 2012. A healthy dose of optimism factors into the third driver: economic recovery. Cuckler et al predict that as the US economy improves over the next 10 years, more people will have disposable income to spend on prescription drugs and health services. The projections do not include any impact of scheduled Medicare Physician Fee Schedule rate updates under the sustainable growth rate’s formula. The authors presume that Congress will modify these to be less drastic in their effects on health-care providers, starting in January 2014, by adjusting the automatic 24.7% fee reduction. They do, however, include the impact of the US Supreme Court ruling, made in June 2012, that makes the expansion of Medicaid eligibility (under health reform) optional for state governments. The Near Future For 2013, the authors project, total national health spending will be found to have risen at a rate of less than 4%, reflecting consumer/business price sensitivity due to continuing economic sluggishness. Medicare expenses are expected to have increased by 4.2%, slightly less than 2012 growth, and to have been offset by the automatic budget cuts of March 1 (sequestration). Growth in spending by private insurance companies will be seen to have slowed to a projected 3.4%. The initial impact of expanded insurance coverage for an estimated 11 million individuals is the primary reason that the authors predict an increase to 6.1% for the 2014 growth rate. The authors expect a spending increase of 12.2% for Medicaid patients—to reach $490 billion. The increase for patients with private health insurance is estimated at 7.7% for the year. Both increases are attributed to the PPACA. Patients will benefit from a 1.5% decline in out-of-pocket spending due to the law’s coverage and cost-sharing provisions. The authors predict more of the same for 2015: a 6% increase due to the addition of an estimated 8 million new enrollees in health-insurance programs, with the assumption that the economy will grow 5%. With more disposable income available, consumers will spend more on health-care services, the authors project. Annual total health-care spending growth from 2016 to 2018 is projected as moderating slightly (at 5%) as the effects of the health-insurance expansion begin to subside in 2016. The authors believe that health-care spending will be fueled by an improving economy and by increases in disposable income. The increase in Medicare spending is projected at 7.3% per year. Beginning in 2019 and extending through 2022, Medicare spending is expected to increase at a rate of 7.9% (compared with 7.3%, for the three previous years) as the enrollment in Medicare of the baby-boom generation builds. The end of sequestration in 2022 was also factored into the greater growth rate. By 2022, 49% of the nation’s estimated $2.4 trillion health-care cost will be paid for by government agencies. The largest contributor will be the federal government, at an estimated $1.5 trillion. This will pay for growth in Medicare enrollment, expanded Medicaid eligibility, and premium and cost-sharing subsidies available through health-insurance exchanges. Hospitals and Physicians Total hospital spending seems to have reached a plateau, with an annual growth rate of just 4.9% in 2012 (the third year that the growth rate was below the 5% mark). The authors anticipate that it will be even lower for 2013 (4.1%) and in 2014 (4.7%). Sequestration