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Healthcare Spending Expected to Grow 5.8% Annually Through 2025

News  |  By HealthLeaders Media News  
   July 14, 2016

Spending is projected to rise at a rate faster than growth in the country's gross domestic product. Contributing factors include economic growth, rising costs, and rising volume.

For the 10-year period between 2015 and 2025, national healthcare spending is projected to grow at a 5.8% annual rate, according to federal research released on Wednesday.

The 2016 National Health Expenditures Report, produced by the Office of the Actuary at the Centers for Medicare & Medicaid Services, projects annual healthcare spending to rise at a rate 1.3% faster than growth in the country's gross domestic product.

If the projection is accurate, healthcare spending as a share of the U.S. economy will rise from 17.5% in 2014 to 20.1% in 2025.

The lead author of the expenditures report, Sean P. Keenan, an economist at the CMS Office of the Actuary, highlighted the findings of the federal research during a conference call Wednesday afternoon.

The expected drivers of healthcare spending growth are similar to those identified in last year's expenditures report, he said.

Growth of health spending is expected to be influenced by changes in economic growth, faster growth in medical prices, and population aging. By the end of the 10-year period, it is projected that federal, state, and local governments will finance 47% of national health spending, up from 45% in 2014.

Projected national health spending growth "is faster than observed in recent history, but slower than in the two decades before The Great Recession, in part because of trends such as increasing cost sharing in private health insurance plans and various Medicare payment update provisions," Keenan said.

Two key provisions of the Patient Protection and Affordable Care Act that are designed to reduce the number of uninsured Americans—Medicaid expansion and public exchange "marketplaces" where individuals and families can purchase healthcare coverage—fueled a spike in medical service spending in 2014 and last year, the expenditures report says.

Health spending growth rose from 2.9% in 2013 to 5.3% in 2014, according to the report. For 2015, continued enrollment growth in Medicaid and the marketplaces, and projected increases in enrollment in employer-sponsored plans, is expected to have resulted in "a slight acceleration in spending growth (5.5%) and a further substantial reduction in the number of uninsured" (7.2 million).

The upward pressure on healthcare spending linked to Medicaid expansion and marketplace health plan enrollment is expected to ease this year, the report says.

"By 2016 the transition of consumers into Medicaid and Marketplace plans and the associated declines in the number of uninsured people are expected to slow significantly, contributing to a lower rate of growth in health spending (4.8%)."

The fastest rate of spending growth is expected to occur between 2020 and 2025, as the result of ballooning enrollment in Medicare linked to the aging baby-boomer population.

By 2025, one in five Americans is expected to received health coverage through Medicare, the expenditure report says.

Drug Spending Uncertain

Developments in the prescription drug market could have a major impact on the accuracy of the expenditure report's projections, Keenan said.

"There is uncertainty in a lot of our projections, and that is especially true with prescription drug spending. With the new drugs, as you saw with hepatitis C, they can significantly impact spending if a high-priced drug comes on and has high use."

It is difficult to predict the development of new drugs in a 10-year timeframe.

Researchers at the Office of the Actuary consulted with pharmaceutical experts, and the consensus was that "there is no new Sovaldi coming out in the near future that is going to have an impact like that drug and similar drugs had in 2014 and 2015," said Keenan.

"But there certainly is the potential that [a new drug] could be approved and have high use and high spend that could impact the projections."

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