U.S. health care spending is projected to grow by an average of 5.5% annually from 2017 to 2026, according to a CMS report published Wednesday in Health Affairs.
Mar. 7 webconference: Here are the key health care trends to watch for in 2018
CMS' Office of the Actuary made the spending projections under the assumption that the Affordable Care Act (ACA) would remain intact through 2026. The projections take into account Congress' elimination of the law's individual mandate penalty, but do not take into account any other potential changes to the law or entitlement programs being weighed by Republican lawmakers.
CMS said the spending growth projections for 2017 through 2026 are largely fueled by the aging baby boomer population, increased prices for medical goods and services, and growth in disposable personal income.
Overall, CMS projected that total health care spending grew by an average of 4.6% in 2017, reaching nearly $3.5 trillion. CMS estimated that U.S. health care spending would reach about $5.7 trillion by 2026. Federal, state, and local governments would cover 47% of that spending, up from 45% in 2016, according the report.
According to the report, national health care spending is once again projected to outpace growth in the United States' Gross Domestic Product (GDP) by about one percentage point. GDP is expected to grow by 4.5% annually from 2017 to 2026. As a result, CMS estimated that health care spending will account for 19.7% of GDP by 2026, up from 17.9% in 2016.
Payer spending and uninsured rate projections
CMS predicted that Medicare spending growth will increase from an average of 3.6% in 2016 to 5% in 2017. The agency estimated that Medicare spending growth would peak at 8% in 2019-2020, in part because of incentive payments made to eligible clinicians under MACRA, before falling slightly to an annual average growth rate of 7.7% from 2021 to 2026. CMS said Medicare enrollment is projected to grow by 2.7% on average each year from 2021 to 2026.
Medicaid spending is projected to grow by an average of 5.8% annually from 2019-2020, before rising slightly to an average growth rate of 6.1% from 2021 to 2026. CMS attributed the higher growth rate to a larger share of older and disabled enrollees requiring more costly care.
Meanwhile, CMS projected that spending for private health insurance will grow by 4.7% on average each year from 2021 to 2026.
CMS also projected the U.S. insured rate would fall slightly from 91.1% in 2016 to 89.3% in 2026 because a recently enacted tax reform law eliminated the ACA's penalty for not having insurance.
Medical price growth projections
CMS projected that price growth for medical goods and services would rise gradually from historically low rates of 1.1% per year from 2014 to 2016, with average annual increases of 2.5% from 2017 to 2026. According to CMS, the average annual growth in prices (2.5%) and use and intensity (1.7%) is expected to account for about 75% of health care spending growth from 2017 to 2026. The actuaries predicted those growth rates would be fueled by greater use of high-deductible health plans and income growth.
Prescription drug spending projections
Among health care goods and services, CMS projected that spending on prescription drugs would experience the fastest average annual growth rate from 2017 to 2026, at 6.3% per year, growing from $338 billion in 2017 to $605 billion in 2026. CMS' projections do not include data on drugs administered in physicians' offices or in hospitals. CMS attributed the spending growth in part to higher prices and demand for specialty drugs. The actuaries also expect manufacturers' prescription drug rebates to have less of an affect at controlling drug spending in future years.
Hospital and home health care spending projections
Spending on hospital care is projected to increase from $1.1 trillion in 2017 to $1.8 trillion in 2026, while spending on physician and clinical services is projected to rise from $698 billion in 2017 to $1.1 trillion in 2026.
CMS projected that home health care spending would increase from $97 billion in 2017 to $173 billion in 2026, largely because of growth in Medicare enrollment as the baby boomer population ages and uses home health care services more often.
Gigi Cuckler, an economist at CMS and the report's lead author, during a media call Tuesday said, "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" (Johnson, "Wonkblog," Washington Post, 2/14; Abutaleb, Reuters, 2/14; Commins, HealthLeaders Media, 2/14; Frellick, Medscape, 2/14; Howell, Washington Times, 2/14; Cuckler et al., Health Affairs, 2/14).
Upcoming webconference: Here are the key health care trends to watch for in 2018
There's a lot to keep up with in health care, which is why it's hard to keep tabs on the changing demand economy, understand performance under value-based payment, and diagnose margin pressures—on top of your day job. Learn today's most relevant health care trends so that you can start 2018 with an understanding of what could lie ahead.
Next in the Daily Briefing
Fortune names 10 hospitals, health systems as 'Best Companies to Work For'