Health Spending Growth Projected to Reach 5.6% This Year

The Centers for Medicare & Medicaid Services (CMS) has projected that in 2014 overall healthcare spending will rise to 5.6% and will continue with an average 6% growth between 2015 and 2023. While health spending growth is expected to remain slow in 2013, the numbers should pick up between 2014 and 2023 as a result of the effects of the Patient Protection and Affordable Care Act (ACA) coverage expansion, faster economic growth, and a continued aging population.

The CMS report—titled National Health Expenditure Projections, 2013-2023, Faster Growth Expected With Expanded Coverage and Improving Economy—was recently published in Health Affairs [2014; DOI:10.1377/hlthaff.2014.0560].

The projected growth from 2013 to 2023 is estimated to be approximately 1.1 percentage points faster than the growth in gross national product (GDP), and the health share of GDP is expected to rise to 19.3% by 2023, up from 17.2% in 2012, according to Andrea M. Sisko, PhD, co-author of the CMS report.

Although 2013 data is still being analyzed, for 2013, overall health spending growth is expected to total <4% for the fifth consecutive year—at 3.6%—in part because of the continued sluggish economic recovery. In addition, the projected growth rate is still well below the 7.2% annual average between 1990 and 2008, according to the CMS.

For physicians and clinical services, spending growth for 2013 is projected to have been $583.9 billion in 2013, representing a decrease from 4.6% in 2012 to 3.3% in 2013. This is in part a result of a reduction in payments to Medicare providers from sequestration and procedural payment changes, according to Sean P. Keehan, MS, co-author of the CMS report.

The CMS projections coincide with the Congressional Budget Office estimates released recently that show another $11 billion reduction in projected spending for Medicare between 2015 and 2024.

In 2023, it estimated that healthcare spending will equal 19.3% of the GDP compared with last year's projection of 19.9% for 2022. It made up 17.2% of GDP in 2012.

Medicaid spending is expected to have risen 12.6% in 2013, a sharp rise from the 2.6% increase in 2012, resulting from temporary increases in payments to primary care physicians that began in 2013 and are set to continue through the end of 2014. Congress could decide to extend that into 2015, but the report's estimates are based on the law’s mandates in its current state.

In addition, the aging of the “Baby Boomer” generation coming into Medicare is expected to boost growth in spending for those services to 6.5% until 2020, followed by a slowdown to 5.9% by 2023. For 2016 to 2023, growth in Medicare spending is expected to outpace that of private health insurance.

The report also indicated that the Medicare physician fee schedule rates will grow 0% in 2015 and 0.6% per year between 2016 and 2023, rather than the scheduled growth under the sustainable growth rate formula in current law, which would result in a reduction of about 21% on April 1, 2015.

Growth in prescription drug spending is expected to jump from just 0.4% in 2012 to 3.3% in 2013, resulting from less brand name drugs going off patent. In 2013, prescription drugs are expected to have accounted for $272.1 billion in health expenditures.

Continued prescription drug spending growth is expected in 2014, rising to 6.8%, a result of greater overall use of prescription drugs in ACA marketplace insurance plans and due to more expensive drugs, most notably the recently approved hepatitis C treatments. This increase in prescription drug use is also expected to continue through 2015.

Between 2016 and 2020, annual growth in prescription drug use is projected to slow somewhat to 5.4% after the initial spike in Medicaid and Medicare enrollment. But between 2020 and 2023, prescription drug use is expected to increase slightly, resulting from higher disposable incomes and newer guidelines encouraging physicians to introduce prescription drugs earlier in the course of treatment.—Kerri Fitzgerald

Source: Thomson Reuters. 2014; U.S. healthcare spending growth to slow further: government report.