Learn 8 strategies to contain future cost growth

• Average spending growth will increase by 5.5% annually from 2018 to 2027—up from 4.4% in 2018 and 3.9% in 2017—reaching a total of nearly $6 trillion by 2027;
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• Prices for health care goods and services is projected to increase by an average of 2.5% annually from 2018 to 2027, accounting for nearly 50% of the estimated growth in personal health care spending; and
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• Medicare spending growth will increase by an annual average rate of 7.6% from 2020 to 2027, compared to 6% average annual growth in Medicaid and 5.1% average annual growth in private health insurance.

What providers need to know

This year's projections—following closely on the heels of the Health Care Cost Institute's annual analysis of commercial health care spending and a 2019 update of the oft-quoted 2003 article "It's the Prices, Stupid"—are just the latest in a series of reports to emphasize the role that price inflation plays in driving health spending growth. What is particularly interesting about the Office of the Actuary's projections is their mention of several factors which they assume held down price growth in recent years, but which they expect to weaken in the coming years. Perhaps most notable among these is increased price sensitivity due to cost-sharing, which CMS believes will exert less downward pressure on price growth moving forward.

How to address the needs of your rising-risk patients

This may come as a surprise to some providers, who often express a sense that price sensitivity in their market has far from reached its full potential. But it does, to a certain extent, track with recent conversations our research teams have had with employers and health plans. These players increasingly believe they may be approaching the limits of how much cost individuals are willing to bear (at least given the current robust state of the labor market)—and how much they can rely on high-deductible health plans to drive cost savings moving forward. They've also expressed desire to continue searching for, and experimenting with, other mechanisms to exert downward pressure on pricing growth. If anything, these latest projections may push employers and governmental payers to focus on strategies to constrain price growth with renewed vigor.

While the headline story may be price, it's important not to ignore the Office of the Actuary's projections about utilization. CMS anticipates some notable accelerations in per-enrollee spending in Medicare and Medicaid, much of which they attribute to anticipated increases in the use and intensity of health care services. While enrollment growth in both programs has been high in recent years with the aging of the baby boomers and expansion of Medicaid in many states, per-person spending growth has been relatively low as younger and healthier beneficiaries have joined each segment. Moving forward, both of these populations will begin to skew older and sicker—creating the need for providers to adapt their care delivery models for an aging population which likely requires higher levels of medical over procedural care.

To learn about how you can meet the needs of these higher-risk and rising-risk patients, be sure to read our new briefing on Addressing the Needs of Your Rising Risk Patients. Then, to learn more about how to operate in a market where rising costs have led to stagnant inpatient volumes, download our new three-part series on Re-igniting the Growth Engine.

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