Healthcare spending increases slowed down in 2016. However, federal actuaries predict spending to increase at a faster rate in the coming years.
Here is a quick summary of spending increases in the last three years:
- 2014—5.5 percent
- 2015—5.5 percent
- 2016—4.8 percent
Spending increases are expected to accelerate to 5.4 percent in 2017 and 5.9 percent in 2019, and averaging out to an annual rate of 5.6 percent over the next decade. (“National Health Expenditure Projections, 2016–25: Price Increases, Aging Push Sector To 20 Percent Of Economy, Health Affairs, February 2017)
The new projections do not assume any changes in existing laws, including the Affordable Care Act (ACA), which has been targeted for repeal and replacement by the Trump administration and congressional Republicans. (“Health Spending Growth Slows But Looks Set to Accelerate,” HFMA Weekly, February 17, 2017)
According to analysts, the main causes of the surges in healthcare spending will be driven by Medicare and Medicaid. However, growth in private health insurance will slow down.
Medicaid Spending Increases
Medicaid spending increases are expected to jump from 3.7 percent in 2017 to 5.9 percent in 2019 and are attributed to an expected end in the surge of relatively healthy enrollees from the ACA’s eligibility expansion. Medicaid expansion was adopted by 31 states and is credited with adding 16.4 million enrollees since the expansion started in October 2013.
“So as the enrollment growth slows in Medicaid you would expect that the aged and disabled would comprise a larger share since we’re not picking up these newly eligible enrollees like we did in 2014 and 2015,” said an economist in the Office of the Actuary at CMS.
Medicare Spending Increases
Medicare spending increases will to accelerate from 5.9 percent in 2017 to 7.1 percent in 2019. That increased spending also was credited to the larger numbers of older and sicker enrollees, with the oldest Baby Boomers now entering their 70s.
“Higher growth in the use of Medicare hospital services is expected in part as the downward pressure on growth attributable to the readmission penalties and the two-midnight rule that occurred during 2011-2015 is not expected to continue,” wrote the actuaries.
Private Insurers
Conversely, private health insurer spending increases are expected to slow from 6.5 percent in 2017 to 5.7 percent in 2019. That anticipated slower growth was credited to several factors, including a continued shift of out-of-pocket costs to enrollees, more prior-authorization requirements, and greater use of utilization review. (“Health Spending Growth Slows But Looks Set to Accelerate,” HFMA Weekly, February 17, 2017)
“Employers seem willing to increase cost sharing to help have their employees share in increases in health benefit costs; whether that shows itself in moving to high-deductible health plans [HDHPs] or whether it shows itself by staying in the same type of plan but imposing more cost sharing, that’s not something we specify,” said an economist for the Actuary at a media briefing.
The Role of Prices
Prices play a significant role in the acceleration of the increase in spending.
Medical prices: medical prices are expected to rise by nearly 3 percent annually by 2025. Medical price inflation is expected to increase from 1.3 percent in 2016 to an annual average of 2.7 percent from 2020 to 2025.
Healthcare employee wages: healthcare employee wages have grown faster than elsewhere in the economy and are expected to fuel overall price increases more so than they have in the recent past.
Note: the analysts wrote “countervailing trends include an expected slowdown in the growth of the use and intensity of medical services from recent 2014 and 2015 highs, which were credited to insurance expansions under the ACA.” (“Health Spending Growth Slows But Looks Set to Accelerate,” HFMA Weekly, February 17, 2017)
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