National Health Expenditures To Hit $6T By 2027, CMS Predicts

National health expenditure growth is expected to average 5.5 percent annually from 2018-2027, reaching nearly $6.0 trillion by 2027, according to a report published today by the independent Office of the Actuary at the Centers for Medicare & Medicaid Services (CMS).

Growth in national health spending is projected to be faster than projected growth in Gross Domestic Product (GDP) by 0.8 percentage points over the same period.  As a result, the report projects the health share of GDP to rise from 17.9 percent in 2017 to 19.4 percent by 2027.

The outlook for national health spending and enrollment over the next decade is expected to be driven primarily by:

• Key economic factors, such as growth in income and employment, and demographic factors, such as the baby-boom generation continuing to age from private insurance into Medicare; and
• Increases in prices for medical goods and services (projected to grow 2.5 percent over 2018-2027 compared to 1.1 percent during the period of 2014-2017).

Similar to the findings in last year’s report, the report found that by 2027, federal, state and local governments are projected to finance 47 percent of national health spending, an increase of 2 percentage points from 45 percent in 2017.  As a result of comparatively higher projected enrollment growth in Medicare, average annual spending growth in Medicare (7.4 percent) is expected to exceed that of Medicaid (5.5 percent) and private health insurance (4.8 percent).

Selected highlights in projected health insurance enrollment and national health expenditures by sector and payer include:

Health Insurance Enrollment: Net enrollment gains across all sources are generally expected to keep pace with population growth with the insured share of the population going from 90.9 percent in 2017 to 89.7 percent in 2027.

Medicare: Medicare spending growth is projected to average 7.4 percent over 2018-2027, the fastest rate among the major payers.  Underlying the strong average annual Medicare spending growth are projected sustained strong enrollment growth as the baby-boomers continue to age into the program and growth in the use and intensity of covered services that is consistent with the rates observed during Medicare’s long-term history.

Medicaid: Average annual growth of 5.5 percent is projected for Medicaid spending for 2018-2027.  Medicaid expansions during 2019 in Idaho, Maine, Nebraska, Utah, and Virginia are expected to result in the first acceleration in growth in spending for the program since 2014 (from 2.2 percent in 2018 to 4.8 percent in 2019).  Medicaid spending growth is then projected to average 6.0 percent for 2020 through 2027 as the program’s spending patterns reflect an enrollment mix more heavily influenced by comparatively more expensive aged and disabled enrollees.

Private Health Insurance and Out-of-Pocket: For 2018-2027, private health insurance spending growth is projected to average 4.8 percent, slowest among the major payers, which is partly due to slow enrollment growth related to the baby-boomers transitioning from private coverage into Medicare.  Out-of-pocket expenditures are also projected to grow at an average rate of 4.8 percent over 2018-2027 and to represent 9.8 percent of total spending by 2027 (down from 10.5 percent in 2017).

Prescription Drugs:  Spending growth for prescription drugs is projected to generally accelerate over 2018-2027 (and average 5.6 percent) mostly as a result of faster utilization growth.  Underlying faster growth in the utilization of prescription drugs, particularly over 2020-2027, are a number of factors including efforts on the part of employers and insurers to encourage better medication adherence among those with chronic conditions, changing pharmacotherapy guidelines, faster projected private health insurance spending growth in lagged response to higher income growth, and an expected influx of new and expensive innovative drugs into the market towards the latter stage of the period.

Hospital:  Hospital spending growth is projected to average 5.6 percent for 2018-2027. This includes a projected acceleration in 2019, to 5.1 percent from 4.4 percent in 2018, reflecting the net result of faster expected growth in both Medicare (higher payment updates) and Medicaid (as a result of expansion in five states), but slower projected growth in private health insurance as enrollment declines slightly due to the repeal of the individual mandate.

Physician and Clinical Services: Physician and clinical services spending is projected to grow an average of 5.4 percent per year over 2018-2027.  This includes faster growth in prices over 2020-2027 for physician and clinical services due to anticipated rising wage growth related to increased demand from the aging population.

The Office of the Actuary’s report will appear at: http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsProjected.html

An article about the study is also being published by Health Affairs and is available here: https://protect2.fireeye.com/url?k=529199bd-0ec4906d-5291a882-0cc47a6a52de-97641bdac742d461&u=http://www.healthaffairs.org/doi/abs/10.1377/hlthaff.2018.05499