Health Spending to Grow By Nearly 6% a Year Through 2025

Healthcare to be 20% of the economy by 2025, says CMS

Spending on healthcare is projected to increase 5.8% per year during 2015-2025, the Centers for Medicare & Medicaid Services (CMS) said Wednesday.

That average “remains lower than the average over [the] previous two decades before 2008,” which was nearly 8%, the agency noted in a press release. However, healthcare spending is projected to grow 1.3 percentage points faster than Gross Domestic Product (GDP) per year over 2015-2025, so healthcare’s portion of GDP is expected to increase from 17.5% in 2014 to 20.1% by 2025, CMS said.

Overall, national health expenditures are estimated to have reached $3.2 trillion in 2015.
In a press release, CMS Acting Administrator Andy Slavitt attributed the slower growth in part to the Affordable Care Act (ACA). “Per-capita spending and medical inflation also remain at historically very modest levels, demonstrating the importance of continuing to reform our delivery systems,” he said.

In 2015, national health spending growth is projected to be 5.5%, compared with 5.3% in 2014, Sean Keehan, of CMS, said on a conference call with reporters; he noted that final 2015 numbers will be released later this year. But spending growth is expected to drop to 4.8% in 2016 due to slowing enrollment in both Medicaid and the ACA’s health exchange plans.

Spending on physician and clinical services is projected to have increased by 5.4% in 2015, and will rise by 4.5% in 2016, according to the agency, which published its findings online in Health Affairs. However, medical prices overall grew by only 0.8% overall in 2015 — down from 1.4% in 2014 — and that was in part because physician prices declined, going from an increase of 0.5% in 2014 to a -1.1% decrease in 2015.

That drop in physician prices “was in part coinciding with expiration of temporary payment increase for Medicaid providers,” CMS economist Gigi Cuckler told MedPage Today during the press call. “Overall, that’s a historic low, so that is going to affect the [long-term] growth rate for physicians.”

In addition, “physician services are disproportionately affected by an increase in cost-sharing by private [health insurance] plans … which tends to dampen private insurance growth in that [physician payment] category.”

The Medicare Access and CHIP Reauthorization Act (MACRA) will begin affecting physician pay in 2019, she continued. “With the implementation of MACRA, there are incentive payments for physicians to participate in alternative payment models, so you’ll see a little bit of a boost for physician participating in that.”

Other findings from the report include:

• The insured share of the population is expected to continue to rise from 89% in 2014 to 92% by 2025.
• Private health insurance expenditures are estimated to have increased by 5.1% from 2014 to 2015, reaching $1.0 trillion.
• In 2015, Medicare expenditures are expected to have been $647.3 billion, a 4.6% increase from 2014, driven partly by increased enrollment.
• Prescription drug spending is projected to grow an average of 6.7% per year for 2016 through 2025. This follows growth of 12.2% in 2014 and 8.1% in 2015 when spending growth was influenced by the introduction of expensive new specialty drugs such as those used to treat hepatitis C.

Analysts were not surprised by the numbers. “There is nothing really new here,” said Gerald Kominski, PhD, at the University of California Los Angeles, in a phone interview. “Healthcare spending is still growing faster than the economy and as a result still takes up a greater and greater share of our economy.”

The ACA has contributed to the increase, he said, “because it’s expanded access to insurance. People who are insured on average spend more than people who are uninsured, even when you adjust for differences in age and health status, because insurance lowers the overall out-of-pocket cost to individuals.”

For physicians, the big issue is going to be the increase in Medicare spending, he added, noting the projections show it’s expected to grow at a faster rate of increase than private insurance. “That creates political pressure to cut Medicare, because that’s a public expenditure and Congress is involved. Private spending takes place out in the marketplace and is sort of generally hidden from public view.”

“I’m not surprised by the projections and they are within generally acceptable boundaries of health-related inflation,” agreed Chris Jones, PhD, of the University of Vermont in Burlington, in an email. “However, I am surprised there is less talk about the aging population moving out of the paid workforce, either due to retirement or due to illness, which could have a much larger impact on our economy than the projected increased cost of their care.”

Ari Friedman, MD, of Beth Israel Deaconess Medical Center in Boston, noted in an email that since healthcare expenditures are exceeding the growth in the rest of the economy, “What that means for physicians will depend on how much additional effort is required to earn those wages — will this be an era where more patients have to be see in shorter intervals to maintain salaries? The fact that increased prices are a driver of cost growth in the projections suggests not.”

“A significant driver of reduced physician prices in this study was the expiration of the Medicaid fee bump for primary care physicians. Because the fee bump seems to have increased access to primary care for Medicaid patients, it may well be implemented in some other form,” he added.

Paul Hughes-Cromwick, of the Altarum Institute in Ann Arbor, Mich., called the projections “too high … not in absolute terms but in relative terms” in a world where prices are generally very low. “Physicians have to be concerned about how much of healthcare is going through the government and [whether] they will be confronting lower payments. The only thing the government can control directly is how much they pay in the public programs, and that’s where the pressure is going to come.”

Source: Medpage Today