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U.S. Healthcare Spending Projected to Climb Swiftly

By Christopher Cheney  
   February 16, 2017

Price Drivers
Two primary factors are expected to be the main drivers of increased healthcare spending over the next decade, medical prices and use and intensity of services, this year's report says. Two secondary factors cited are population growth and the population's age-sex mix.

Changes in overall medical-service prices are mainly the result of economy-wide inflation and "medical-specific price inflation," according to the report, which defines medical-specific price inflation as the variation between medical and economy-wide inflation.

Inflation's Effect
From 2014 to 2016, the annual average rate of medical-specific price inflation was -0.2%, the lowest rate since 1973.

Medical-specific price inflation is expected to be a key factor in overall medical-service prices from 2020 to 2025, increasing at an annual average rate of 0.5%.

The report projects the annual average rate of overall medical-service prices to increase steadily over the next decade:

  • 1.6% this year
  • 2.4% next year and 2019
  • 2.7% from 2020 to 2025

The conclusions of the report highlight both regulatory uncertainty and continued pressure from payers to contain spending over the next decade.

The authors concede that their conclusions are based on continuation of the current regulatory framework, despite significant uncertainty about how regulatory changes such as repeal of the Patient Protection and Affordable Care Act could impact healthcare spending.

"This analysis finds that under current law and following the recent significant period of transition associated with coverage expansions, healthcare enrollment and spending trends are projected to revert to being fundamentally driven by changes in economics and demographics."

Regardless of any regulatory changes, the report concludes that pressure from payers to contain healthcare spending will continue over the next decade. "Employers, insurers, and other payers will continue to pursue strategies that seek to effectively manage the use and cost of healthcare goods and services."

Christopher Cheney is the senior clinical care​ editor at HealthLeaders.

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