Healthcare Spending Accelerating in U.S. as Prices, Incomes Rise

John Commins, February 14, 2018

If the current pace holds, CMS actuaries project healthcare spending will reach $5.7 trillion by 2026 and consume nearly 20% of the gross domestic product.

Healthcare spending is projected to eat an even bigger slice of the U.S. economy in the next eight years, according to projections released today by the Centers for Medicare & Medicaid Services.

CMS' Office of the Actuary projects an average annual rate of national health spending growth of 5.5% for 2017–26, representing about $5.7 trillion, and outpacing average projected growth in gross domestic product by 1 percentage point.

The key drivers for spending growth include: growth in disposable personal income; increased prices for medical goods and services; and aging Baby Boomers’ ongoing shift from private health plans to Medicare, CMS said.

Related: Hospital Spending Growth Forecast at 5.5% Annually though 2026

As a result, the healthcare share of the economy is projected to climb to 19.7% by 2026—up from 17.9% in 2016, or $3.3 trillion. CMS said the projections rely on the current-law framework and assume no legislative changes over the decade.

The projections were published today in Health Affairs.

"Something that really stands out is how much these projections are really influenced by fundamental demographic and economic shifts," Gigi Cuckler, an economist at CMS and lead author of the study said Tuesday in a media conference call.

"It’s very clear that the aging of the population has a significant influence on Medicare enrollment and shifts out of private health insurance. And it is also very clear that the growth in income, particularly disposable personal income, has a substantial influence, particularly on projected private health insurance and out-of-pocket spending," she said.

Along with the aging demographic, price growth for medical goods and services is also expected to be a significant factor for spending growth, and is projected to increase from historically low rates in 2014–16 of 1.1% per year, and average 2.5% per year for 2017–26.

Spending for hospital care is projected to increase from $970 billion in 2018 to $1.8 trillion in 2026, while spending for physician and clinical services is expected to climb from $734 billion to $1.1 trillion over the same eight years.

John Commins

John Commins is a senior editor at HealthLeaders Media.

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