Health Share of Economy to Near 20% in Next Decade

A new CMS-based study reports that annual healthcare spending growth should exceed an average of 5%, and that spending will shift from private to Medicare.

A new report from the Centers for Medicare & Medicaid Services’ (CMS) Office of Actuary projects that US health spending is projected to grow by 5.5% in the following decade. The predicted growth rate would outpace the average projected gross domestic product (GDP) growth by 0.8 percentage points.

The findings—which do not account for legislative changes over the projected period of 2018-2027—would therefore project the health share of the economy to reach 19.4% by 2027, an increase of 1.5 percentage points.

In investigator’s more immediate projections, they report that health spending had grown 4.4% in 2018 and reach $3.6 trillion, while the insured population rate maintained at 90.9%. For this year, they project another spending growth to 4.8%, with increases to Medicare spending growth and decreases in private health insurance rates.

Study lead author and CMS Office of the Actuary economist Andrea Sisko elaborated on the projected growths in a statement accompanying the study.

“While Medicare spending is expected to accelerate the fastest among payers and contribute to the increase, growth in health prices and disposable personal income are also significant contributors,” she said.

Hospital spending growth is projected to increase to 4.4% in 2018, and then again to 5.1% in 2019, and increased drug use—combined with new therapy options and slightly faster price growth—is projected to accelerate prescription drug spending growth to 4.6% in that time frame.

From 2020-2027, investigators project national health spending growth to average 5.7%—another increase from the 2019, due partly to personal health care prices rising. Medicare spending growth is projected to remain the greatest among major payer options (mean 7.6%). Though private insurance is projected to reach 5.4% in 2023-2024, investigators noted that would be its peak during that period—disposable personal income is expected to grow significantly from 2020-2022.

In the latter half of the next decade, private health insurance enrollment is projected to grow below the rate of population—declining slightly to an 89.7% insured rate in 2027.

The projected healthcare spending growth of 5.7% from 2020-2027 would be the greatest marker of growth in a time period since it increased 7.2% from 1990-2007, according to the CMS. In 2017, the most recently reported time period, spending growth increased just 3.8%.

Investigators projected Medicare spending growth from 2020-2027 to be “considerably higher” than that of private health insurance spending growth, mostly due to baby boomers shifting from private health insurance into Medicare. Physician and clinical services annual growth is anticipated to increase an average of 5.4% in that time period.

“Following a ten-year period largely influenced by the Great Recession and major health reform, national health spending growth during 2018—27 is expected to be driven primarily by long-observed demographic and economic factors fundamental to the health sector,” investigators wrote.

Last year, Harvard Global Health Institute Director Ashish K. Jha, MD, MPH, detailed his research team’s recent findings on US healthcare spending rates in an interview with MD Magazine®. According to their study, the US spent 17% of its GDP on healthcare in 2016—a rate almost twice that of the next 11 highest-spending countries’ average (11.5%).

Pointing to patient costs and administrative-based expenses, Jha described the burden of US patient spending in a way that could double as explanation for the CMS investigator’s projection of movement from private health insurance to Medicare in the next decade.

“A privately insured person in Kansas probably pays twice as much for an MRI than the person with private insurance in Geneva, Switzerland does,” he told MD Mag at the time. “And Geneva is one of most expensive cities in the world — a cappuccino from Starbucks costs about $9.”

The study, “National Health Expenditure Projections, 2018—27: Economic And Demographic Trends Drive Spending And Enrollment Growth," was published online in Health Affairs.