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Hospital Spending Growth Forecast at 5.5% Annually though 2026

News  |  By John Commins  
   February 14, 2018

Private insurance spending for hospital care is decelerating, owing to aging Baby Boomers transitioning to Medicare, the impending repeal of the individual mandate, and the growth of high-deductible plans that constrain utilization.    

Hospital spending will grow about 5.5% each year, from $1.3 trillion in 2018 to $1.8 trillion in 2026, driven largely by an aging demographic and price increases, according to Centers for Medicare & Medicaid Services projections

Hospital spending grew by 4.6% and 4.7% in 2016 and 2017, respectively, CMS said.

Related: US Healthcare Spending Accelerates

"While growth is expected to be the same or somewhat faster for most major payers for hospital care, including Medicare/Medicaid, growth for private health insurance spending for hospital care is expected to slow by 0.9 percentage points in 2017," CMS economist Andrea Sisko said Tuesday.

"That is due, in part, to the effect of high-deductible health plans on utilization that was more than offset by the Affordable Care Act coverage expansion in 2014 through 2016," Sisko said.

The 0.9 percentage point deceleration is also projected for private health insurance spending for physician and clinical services, Sisko said.

“Otherwise, growth in projected prices and demographics are some of the factors driving spending by payers for the remainder of the projection period,” she said.

In 2017, 28% of workers were enrolled in high-deductible plans, compared with 5% in 2007, and CMS said there is increasing evidence that enrollment in high-deductible plans constrains the use of healthcare goods and services, particularly after the initial enrollment shift.

"The share of private health insurance enrollees in high-deductible plans is anticipated to stabilize over the projection period," CMS said. "Consequently, by the latter half of the period, both out-of-pocket and private health insurance spending for personal healthcare are projected to be driven by the same underlying factors (most importantly, disposable personal income that affects the use of healthcare goods and services)."

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.

CMS economist Gigi Cuckler said that many of the drivers affecting hospital spending are also affecting physician and clinical services.

"In 2017 you had the effect of the coverage expansion dampening and you start to see the effects of the proliferation of high-deductible plans, particularly on private health insurance spending," she said.

"So, you have a slowdown in projected private health insurance spending for 2017 which, in turn, results in a slowdown in overall physician and clinical services projected growth to 5% in 2017, from 5.4% in 2016," she said.

"By 2018, however, we are projecting that prices for physician and clinical services will increase largely due to increases in overall economy-wide inflation, but also due to increases in input prices, in particular healthcare wages," she said.

Even with the increase in prices projected for 2018, CMS projects a modest increase in growth for physician and clinical services, from 5% in 2017 to 5.1% in 2018.

"In 2019-20 private health insurance growth is dampened by the repeal of the individual mandate, while out-of-pocket spending is projected to increase. That is something we see similarly flow through to a lot of the sector," Cuckler said.

Closer to 2026, Cuckler said, "the trends in private health insurance and out-of-pocket spending are mostly driven by the same underlying factors that typically contribute to growth in spending in this category, mainly the lag effect of disposable personal income growth."

Medicare growth is also projected to accelerate in the second half of the projection, Cuckler said, which is partly related to physician incentive payments under the MACRA legislation and the end of sequestration, which explains an uptick in growth for Medicare physician spending in 2026.

John Commins is a content specialist and online news editor for HealthLeaders, a Simplify Compliance brand.

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