The end of health care’s historic spending slowdown is near

The historic slowdown in health-care spending has been one of the biggest economic stories in recent years — but it looks like that is soon coming to an end.

As the economy recovers, Obamacare expands coverage and baby boomers join Medicare in droves, the federal Centers for Medicare and Medicaid Services' actuary now projects that health spending will grow on average 5.7 percent each year through 2023, which is 1.1 percentage points greater than the expected rise in GDP over the same period. Health care's share of GDP over that time will rise from 17.2 percent now to 19.3 percent in 2023, or about $5.2 trillion, as the following chart shows.


Pinpointing the drivers behind the recent slowdown in spending growth has been difficult, but the stakes are enormous. The future of health spending holds major implications for the federal budget and what consumers ultimately will have to pay for their care.

The outlook for this past year is still pretty good. Health spending is projected to have grown just 3.6 percent in 2013, which would mark the fifth straight year that annual growth remained under 4 percent, based on new 2013 projections from CMS's Office of the Actuary, which offers a detailed outlook each year. The slow economy, sequester cuts to Medicare and a greater uptake of high-deductible health plans likely contributed to the slow growth in 2013, the actuary said Wednesday.

If the CMS actuary's 2013 estimates are on track, overall health-care spending will stay at 17.2 percent of the national economy for the second straight year. That won't last, though. The CMS actuary is expecting health spending to grow 5.6 percent in 2014, partly because of Obamacare's coverage expansion to previously uninsured individuals, as well as the law's more generous coverage requirements. The actuary is expecting the growth in health spending in 2015 to slow down to 4.9 percent, mostly due to payment reductions in Medicare Advantage and Medicaid. Health spending will then pick up again, growing a projected 6.1 percent per year between 2016-2023, the actuary said.

Still, that's lower than some of the major increases seen in the 1990s and 2000s. And the outlook for health spending, published in Health Affairs on Wednesday, is actually a bit better than last year's prediction that it would reach 19.9 percent of GDP by 2022.


(CMS Office of the Actuary)

What the actuaries can't tell, yet, is if changes to how health care is delivered is keeping down spending growth. Lower health spending usually tracks with economic downturns, but they still can't measure if changes in the health-care system will have a lasting effect.

"It's still too early to say if that relationship between health spending and economic growth has been broken," said Andrea Sisko, an economist in the CMS actuary's office.

CMS actuary officials, who previewed their results for reporters Wednesday morning, offered several reasons for why they don't think health spending will return to historically high levels of the old days. One of those reasons is the greater prevalence of high-deductible health plans, which are supposed to make people more careful users of health-care services since they bear more of the cost. Further, the growth in how much Medicare spends per beneficiary has been historically low in recent years, though the actuary expects that will eventually return to normal levels. Drug spending also isn't expected to hit previously high levels as generics become more widely available, though the expected rise in expensive specialty drugs will drive the spending increase, officials said.

A few points worth noting about the actuary's projections: Taking a cue from the trustees overseeing Medicare, the actuary's office assumes that Congress will once again approve a "doc fix" to avoid the scheduled 21 percent cut to Medicare physician payments. The actuary also assumes that the Affordable Care Act's temporary bump in federal reimbursement to Medicaid doctors will go away at the end of the year as planned, though some Democrats and physician groups are pushing for an extension of the policy to encourage more doctors to take Medicaid patients as the program expands.

Also, past actuary reports used to break out projections with and without the Affordable Care Act, but not this year. "Now that the ACA has been in place well over four years, it's increasingly difficult to estimate a counter-factual, meaning what the world would like in the absence of the Affordable Care Act," Sisko said.

Jason Millman covers all things health policy, with a focus on Obamacare implementation. He previously covered health policy for Politico.
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