CMS: Flood of Baby Boomers to Drive Growth in U.S. Health Spending

WASHINGTON -- Health spending in the U.S. is expected to grow from $3.6 trillion in 2018 to $6.0 trillion by 2027, according to a new report from Centers for Medicare & Medicaid Services (CMS) actuaries.

The estimated growth in spending, an average of 5.5% annually over the next decade, will be driven largely by an influx of baby boomers enrolling in Medicare, income growth, and the rising costs of medical goods and services, according to the projections published in Health Affairs on Wednesday.

Actuaries also anticipate that the health spending share of gross domestic product (GDP) will jump from 17.9% in 2017 to 19.4% by 2027, due to annual health spending growth outpacing annual GDP growth by 0.8%.

According to the report, the anticipated growth rate is higher than the 3.9% rate that followed the latest recession (2008-2013) and the 5.3% growth rate following the passage of the Affordable Care Act (ACA; 2014-2016), yet far slower than the 7.3% growth rate of the 2 decades that preceded the recession (1990-2007).

"In short, we expect ... that health spending over the next decade to be driven by long-observed demographic and economic factors that are fundamental to the health sector in contrast to the last decade," noted lead author Andrea Sisko, PhD, an economist for the National Health Statistics Group in the Office of the Actuary, referring to the impact of the "Great Recession" and ACA implementation.

Such "fundamental factors" include "faster growth in prices for medical goods and services ... as certain factors that had limited price increases ... are expected to be less influential in restraining prices during the projection period," she added.

Medical goods and services are projected to grow by 2.5% annually over the next decade (2018-2027), compared with just 1.1% from 2014-2017.

In all, healthcare prices are expected to account for almost half of the growth in personal healthcare spending from 2018-2027, she added.

Income growth trends are also said to play a role in healthcare spending, especially for private insurance and out-of-pocket spending, and patient demographics -- namely, a wave of baby-boomers transitioning from private healthcare to Medicare plans throughout the actuaries' projection period -- also influenced the forecast, Sisko noted.

Other important findings from the report and an accompanying press release include:

  • Average annual spending growth in Medicare (7.4%) is expected to be higher than that of Medicaid (5.5%) and private insurance (4.8%) over the next decade, as more baby-boomers hit age 65 years and "use and intensity" of covered services increases
  • Medicaid expansion in five states (Idaho, Maine, Nebraska, Utah, and Virginia) in 2019 will trigger the first boost in spending growth since 2014 (from 2.2% in 2018 to 4.8% in 2019), and spending for the program is estimated to rise to an average of 6.0% from 2020-2027, owing to the enrollment of more costly older and disabled beneficiaries
  • Among private plans, out-of pocket expenses are slated to grow on average at 4.8% during the projected period, and to account for 9.8% of total spending by 2027 (lower than the 10.5% projected in 2017)

The CMS actuaries also forecast that spending for physician and clinical services will grow on average at 5.4% from 2018-2027, as a result of rising wage growth caused by increased demand from aging patients.

Prescription drug spending is also expected to increase, at a rate of 5.6% during the projected period due to "faster utilization growth" in part caused by employers and insurers pressing for stronger medication adherence among chronically ill patients, revised pharmacotherapy guidelines, and greater private plan spending (a lagging response to higher income growth), as well as an "expected influx of new and expensive innovative drugs."

Regarding hospitals, the report also estimated 5.6% average spending growth for the projected period, which balances the expected growth of Medicaid and Medicare enrollees with an expected decline in the growth of private health insurance, in part caused by the repeal of the individual mandate.

The projections were developed based on "actuarial and econometric modeling techniques" and are consistent with the standards of previous national health expenditure reports, noted a CMS presentation. Estimates are based on current law and do not take into account any policy proposals currently being considered.


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