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PNHP RESOURCES

What do health care cost trends mean for us?

National Health Expenditure Projections, 2013–23: Faster Growth Expected With Expanded Coverage And Improving Economy

By Andrea M. Sisko, Sean P. Keehan, Gigi A. Cuckler, Andrew J. Madison, Sheila D. Smith, Christian J. Wolfe, Devin A. Stone, Joseph M. Lizonitz and John A. Poisal (all affiliated with CMS Office of the Actuary)
Health Affairs, September 2014

Abstract

In 2013 health spending growth is expected to have remained slow, at 3.6 percent, as a result of the sluggish economic recovery, the effects of sequestration, and continued increases in private health insurance cost-sharing requirements. The combined effects of the Affordable Care Act’s coverage expansions, faster economic growth, and population aging are expected to fuel health spending growth this year and thereafter (5.6 percent in 2014 and 6.0 percent per year for 2015–23). However, the average rate of increase through 2023 is projected to be slower than the 7.2 percent average growth experienced during 1990–2008. Because health spending is projected to grow 1.1 percentage points faster than the average economic growth during 2013–23, the health share of the gross domestic product is expected to rise from 17.2 percent in 2012 to 19.3 percent in 2023.

Model And Assumptions

These projections remain subject to substantial uncertainty and reflect the variable nature of future economic trends, as exemplified by the prolonged and comparatively sluggish nature of the recovery from the 2007–09 recession. In addition, the United States has experienced only the initial effects of the ACA’s coverage expansions. The impacts of reform on the behavior of consumers, insurers, employers, and providers will continue to unfold throughout the projection period and beyond. In particular, the supply-side effects of the ACA remain highly speculative and are not included in these estimates.

Conclusion

Since the end of the Great Recession in 2009, economic growth in the United States, as measured by GDP, has remained slow: just 3.9 percent per year, on average, which is well below the average rate experienced in the four years following the three previous recessions. The fact that recent health spending increases have not returned to their prerecession rates is consistent with the long-standing relationship between overall economic growth and health spending growth.

Growth rates for both the economy and health spending have been slow. However, the health share of GDP has remained relatively constant since 2009 and is expected to be 17.2 percent in 2013. Contributing to the stable share in 2013 are continued low use of medical care and provisions of both sequestration and health reform that constrain payments to Medicare providers.

The period in which health care has accounted for a stable share of economic output is projected to end in 2014, primarily because of the coverage expansions of the ACA. It is anticipated that by 2017, once the mostly one-time transition effects of expanded coverage have fully transpired, the health share of GDP will increase, albeit at a slower rate than its historical average, as an improving economy and the aging of the baby-boom generation lead to faster health spending growth.

http://content.healthaffairs.org/content/early/2014/08/27/hlthaff.2014.0...

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Comment:

Don McCanne, MD

When people ask how much the United States is spending on health care, it is the numbers from this report that are usually cited. So how much are we spending now, and what will that spending grow to a decade from now?

Projected spending for 2014:

  • National health expenditures (NHE):  $3.057 trillion
  • NHE per capita:  $17,354
  • NHE as a percent of GDP:  17.6%

Projected spending for 2023:

  • National Health expenditures (NHE):  $5.159 trillion
  • NHE per capita:  $26,691
  • NHE as a percent of GDP:  19.3%

With the Affordable Care Act (ACA) the changes in spending represent not only the usual factors that the actuaries consider each year, they also include the changes in coverage due to the establishment of the insurance exchanges and the expansion of Medicaid, along with other direct and indirect results of implementing ACA. Considering all of the variables, the actuaries once again have done a commendable job in arriving at their estimates.

Although the authors do make it clear that there is substantial uncertainty in these predictions, especially due to the variable nature of economic trends, there is one aspect that should raise our concern. Their results depend on the prediction that there will be faster growth in disposable personal income. Yet when you read the work of Thomas Piketty, Emmanuel Saez, Joseph Stiglitz, Robert Reich and others, there is a very real concern that, though the economy may continue to reward the rentiers generously, personal incomes for workers may well remain stagnant. Many will have no discretionary income and may have to continue to cut into the portions of their budgets that pay for essential needs.

This will be of particular concern because of the increases in out-of-pocket spending that will be required as more people are shifted into lower actuarial value plans with higher cost sharing, especially higher deductibles. Many policy experts believe that a significant portion of the recent slowing in health care spending has been due to the high out-of-pocket costs for upfront health care, causing patients to decline care that they should have. This is not the way we should be trying to put a lid on health care spending. People will suffer and some will die simply because of their perception that health care is personally not affordable because of the high upfront costs.

Another important consideration is that predictions of future health care spending are dependent not only on expansion of health care coverage and on the other variables, but they also are dependent on the baseline costs of the existing health care financing system. As we all know, the administratively complex multi-payer system that we have in the United States is the most expensive model of financing health care with its tremendous built in waste. If we were to change to an efficient single payer system, not only would everyone have affordable access to health care, we would not be talking about a trend in national health expenditures that in a decade will consume almost one-fifth of our gross domestic product.