US healthcare spending growth to hit 5.5% by 2027, CMS predicts

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Dive Brief:

  • National spending on healthcare is projected to grow by 5.5% annually between 2018 and 2027, according to a new report from the Centers for Medicare and Medicaid Services’ Office of the Actuary. At that rate, spending growth would outpace average anticipated GDP growth by 0.8%.
  • Economic and demographic factors, including changes in income growth and shifting enrollment from private insurance to Medicare as the U.S. population skews older, are expected to drive that growth. The forecast means healthcare would account for 19.4% of the U.S. economy by 2027, up from 17.9% just two years ago.
  • The country’s bill for prescription drugs will grow by 3.3% in 2018 alone, compared to 0.4% in 2017, partially spurred by the introduction of dozens of new drugs on the market.

Dive Insight:

The nearly 6% annual growth estimated over the next decade contrasts with the previous 10 years, which were marked by a recession and the birth of the Affordable Care Act, and saw health spend growth decrease from 5.5% in 2007 to 3.2% in 2017. (Out-of-pocket costs for the consumer rose 11% that year, however.)

Healthcare spending growth is expected to increase to 4.8% in 2019 alone, up from 4.4% last year, and then increase between 2020 and 2027 by an average of 5.7%.

The analysis is based off current legislation and doesn’t factor in any changes over the nine year period. Actual figures could change depending on any major regulatory or political shifts — for example, if the conservative effort to repeal the ACA results in legislative action.

CMS expects continuing growth in prices of healthcare goods and services to be a significant factor. Prices are projected to increase an average of 2.5% per year — almost half of the overall healthcare spending growth, in line with recent Health Care Cost Institute research finding prices, not use, drove higher costs.

Use and intensity of healthcare will account for just under a third of growth at 1.7%, with the remainder accounted for by changing demographics, CMS said.

Credit: CMS Office of the Actuary

Medicare spend is forecasted to grow an average of 7.4% yearly by 2027, outpacing Medicaid and private insurance as baby boomers age into the program.

«While Medicare spending is expected to accelerate the fastest among payers and contributed to the increase, growth in health prices and disposable personal income are also significant contributors,» Andrea Sisko, an Office of the Actuary economist and author of the Health Affairs study, said.

Between 2020 and 2027, hospital spending is projected to grow yearly at an average of 5.7%, while prescription drug spending is forecast to rise by an average of 6.1% during that period due to increased utilization.

«What’s been interesting about the last 10 years is that there’s been a significant deceleration in drug price growth,» National Health Statistics Group economist Sean Keehan said on a call with reporters, citing the emergence of more generic drugs as a factor. Between 2008 and 2017, prescription drug price growth averaged out at a relatively slim 2.7%.

Though the rate of drug cost is slated to increase, it’s expected to remain lower than the longer term history, especially in the period from 1990 to 2007, Sisko said. CMS expects drug spend will account for almost 10% of America’s healthcare spend by 2027, a small increase from its current level of 9.4%.

The overall figures on drug spending don’t tell the whole story, though. Much of the debate over rising drug prices relates to specialty drugs, including pricey biotech ones, administered in doctors’ offices and hospitals.

But the Office of the Actuary drug cost estimates only include drugs purchased in a retail setting. Drugs bought in a hospital or physician office and billed there are lumped into the projected spending for the hospital or physician categories, respectively.

 

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