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How should we use the CMS National Health Expenditures projection?

CMS Office of the Actuary releases 2017-2026 Projections of National Health Expenditures

Centers for Medicare & Medicaid Services (CMS), February 14, 2018

Today the independent CMS Office of the Actuary released the projected national health expenditures for 2017-2026.

National health expenditure growth is expected to average 5.5 percent annually over 2017-2026, according to a report published today as an “Ahead Of Print” by Health Affairs and authored by the 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 1.0 percentage point over 2017-2026. As a result, the report projects the health share of GDP to rise from 17.9 percent in 2016 to 19.7 percent by 2026.

The outlook for national health spending and enrollment over the next decade is expected to be driven primarily by fundamental economic and demographic factors: trends in disposable personal income, increases in prices for medical goods and services, and shifts in enrollment from private health insurance to Medicare that result from the continued aging of the baby-boom generation into Medicare eligibility.

“Personal healthcare spending” measures spending for medical goods and services provided directly to patients. Over the projection period, growth in personal healthcare prices and growth in the use and intensity of care provided collectively explain about three quarters of the growth in personal healthcare spending.

The report also found that by 2026, federal, state and local governments are projected to finance 47 percent of national health spending, up from 45 percent in 2016.

“Today’s report from the independent CMS Office of the Actuary shows that healthcare spending is expected to continue growing more quickly than the rest of the economy,” said CMS Administrator Seema Verma. “This is yet another call to action for CMS to increase market competition and consumer choice within our programs to help control costs and ensure that our programs are available for future generations.”

https://www.cms.gov...

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National Health Expenditure Projections 2017-2026; Forecast Summary; Major Findings for National Health Expenditures: 2017-2026

Centers for Medicare & Medicaid Services (CMS), Office of the Actuary

* Under current law, national health spending is projected to grow at an average rate of 5.5 percent per year for 2017-26 and to reach $5.7 trillion by 2026. While this projected average annual growth rate is more modest than that of 7.3 percent observed over the longer-term history prior to the recession (1990-2007), it is more rapid than has been experienced 2008-16 (4.2 percent).

* Health spending is projected to grow 1.0 percentage point faster than Gross Domestic Product (GDP) per year over the 2017-26 period; as a result, the health share of GDP is expected to rise from 17.9 percent in 2016 to 19.7 percent by 2026.

* Projected national health spending and enrollment growth over the next decade is largely driven by fundamental economic and demographic factors: changes in projected income growth, increases in prices for medical goods and services, and enrollment shifts from private health insurance to Medicare related to the aging of the population.

* Among the major payers for health care, growth in spending for Medicare (7.4 percent per year) and Medicaid (5.8 percent per year) are both substantial contributors to the rate of national health expenditure growth for the projection period. Both trends reflect the impact of an aging population, but in different ways. For Medicare, projected enrollment growth is a primary driver; for Medicaid, it is an increasing projected share of aged and disabled enrollees.

* The recent enactment of tax legislation that eliminated the individual mandate is expected to lead to a reduction in the insured rates. Economic factors, such as projected GDP growth and employment trends, are the primary factors contributing to a slight projected decline in the insured share of the population from 91.1 percent in 2016 to 89.3 percent in 2026.

https://www.cms.gov...

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National Health Expenditure Projections, 2017–26: Despite Uncertainty, Fundamentals Primarily Drive Spending Growth

Health Affairs, February 14, 2018

Projections

National Health Expenditures (NHE)
2018 - $3,675.3 billion
2026 - $5,696.2 billion

NHE per capita
2018 - $11,193.2
2026 - $16,167.6

NHE as percent of GDP
2018 - 18.2%
2026 - 19.7%

https://www.healthaffairs.org...

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Comment:

By Don McCanne, M.D.

The Office of the Actuary of CMS remains the best source of predictions for the future of our health care spending. Reasonable economic and demographic analyses indicate that growth of spending will continue to be driven especially by price increases and by growth in use and intensity of care related to demographic changes. By 2026, national health expenditures as a share of GDP are expected to rise to 19.7 percent - almost one-fifth of our GDP.

Although we continue to have a national discourse on the amount of our health care spending, other important variables include the accessibility of health care and the financial barriers which influence that access. The design of the nation's health care financing system is even more crucial than the amount we are spending.

Because of the high costs of health care, the great variability in individual health care needs, and and the unequal distribution of income and wealth, a health care system that takes care of everyone requires an egalitarian transfer from the healthy and wealthy to the sick and poor. A well designed single payer national health program does precisely that, but it requires the implementation of an effective public (government) program.

Can the private sector accomplish the transfer in an effective and equitable manner? Absolutely not, and we have a century of experience with the private sector to prove this. Even with the high level of government involvement that we now have (the government funds about two-thirds of our health care) the design of our health care financing system has failed to implement the tools that would increase the effectiveness and efficiency in allocation of our health care funds and resources.

What does this have to do with the report on our national health expenditures? The press release quotes CMS Administrator Seema Verma: "Today’s report from the independent CMS Office of the Actuary shows that healthcare spending is expected to continue growing more quickly than the rest of the economy. This is yet another call to action for CMS to increase market competition and consumer choice within our programs to help control costs and ensure that our programs are available for future generations." Get the government out and turn it over to the private sector - a recipe for disaster - as the policies already put into place by the current administration and previous administrations are now demonstrating, and they promise much more.

Using standard economic and demographic analyses can predict a certain amount of stability in health care financing, but the political variables can greatly distort the future. Depending on who we select to lead our nation, we could have comprehensive, affordable health care for absolutely everyone, or we could have a system designed primarily to enrich the medical-industrial complex while threatening the health and financial security of the majority of us.

Don't let a sterile report on national health expenditures lull you into complacency.

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