National Health Spending to Increase Significantly Over the Next Decade

The Office of the Actuary at the Centers for Medicare & Medicaid Services (CMS) recently released a report projecting national health expenditures between 2017 and 2026.

The national health expenditure is expected to increase at an average of 5.5% each year from 2017 to 2026, with spending estimated to grow faster than the gross domestic product (GDP) rate, according to the report.

The Office of the Actuary expects the health expenditure share of the GDP to rise from 17.9% in 2016 to 19.7% by 2026.

“Today’s report from the independent CMS Office of the Actuary shows that healthcare spending is expected to continue growing more quickly than the rest of the economy,” said CMS Administrator Seema Verma. “This is yet another call to action for CMS to increase market competition and consumer choice within our programs to help control costs and ensure that our programs are available for future generations.”

Economic and demographic factors—including trends in disposable personal income, increase in the cost of health care, and shifts from private health insurance to Medicare—are expected to contribute to national health spending and enrollment over the next decade, according to the CMS.

During this period, growth in both the cost and the use of care are projected to account for 75% of the increase in personal health care spending, according to the report. This category includes spending on goods or services provided directly to patients.

In 2016, 45% of all health care spending was financed by federal, state, and local government, which is projected to increase to 47% by 2026, the CMS reported.

National health spending is projected to grow from 4.3% in 2016 to 4.6% in 2017 largely due to increases in Medicare spending, health care prices, and in insurance premiums purchased through Affordable Care Act (ACA) marketplaces, according to the report.

In 2018, national health spending is projected to increase 5.3%, due to growth in personal health care prices. National health spending is projected to reach 5.5% in 2019 and 2020, and 5.7% between 2021 and 2026, according to the report.

Additionally, Medicare is projected to experience rapid growth, reaching 7.4% due to a spike in enrollment from baby boomers who will become eligible for the program, according to the report. In contrast, private health insurance will increase at an average of 4.7%, with low rates of enrollment growth, according to the report.

Medicaid spending is projected to increase by 5.8% over the next decade, slowing down from the 8.3% rise via ACA expansion from 2014-2016.

The report also noted that personal health spending is expected to increase by 5.5% as a result of personal health care price increases, the use and intensity of treatment, population growth, and changing demographics, according to CMS.

Specialty medications are expected to drive a 6.3% increase in spending growth for prescription drugs.

Notably, the insured rate is likely to drop from 91.1% to 89.3% due to the elimination of penalty payments and a downward trend in the use of employer sponsored benefits, according to the report.

These projections take health provisions from the Tax Cut Act and Jobs Act into consideration, as well as funding for the Children’s Health Insurance Program, CMS concluded.