CMS: Medical prices, aging population to speed up health spending growth

Dive Brief:

  • National health expenditures are projected to grow at a rate of 5.6% on average per year over the coming decade after last year's dip of 4.8% from 5.8% in 2015new estimates from the Office of the Actuary at the CMS show. 
  • Researchers argue the average rate of medical prices, which reached a "historic low" in 2015 at 0.8%, will drive the spending growth as it will increase at a faster pace and reach 3.0% by 2025. The country's aging population is also expected to contribute to the health spending growth. 
  • However, the use and intensity of medical services will grow at a slower pace compared to the growth seen in 2014 and 2015 when the industry was still feeling the "largest impacts" of a substantially larger number of insured Americans thanks to the ACA, the report states. 

Dive Insight:

The researchers do not consider how certain healthcare policy changes that have yet to be realized,  including the fate of the ACA, would likely impact this spending when conducting the annual financial analysis.

So while the health spending growth was also projected to rise 1.2 percentage points faster than Gross Domestic Product each year over the next decade, it remains to be seen whether the major transformations the U.S. healthcare system will be facing in the near future will perpetuate or address the problem. The Trump administration's plans to repeal the ACA is expected to cost hospitals about $165 billion, according to the American Hospital Association. On the other hand, the continued push toward value-based care with MACRA's implementation of the Quality Payment Program could help to bring spending down because value-based reimbursements have already resulted in some cost savings.

Last year, the health spending growth during 2014 and 2015 was attributed to the increased rate of insured Americans. However, the new estimates show Medicaid spending could have "decelerated sharply" (9.7% in 2015 v. 3.7% in 2016) because "enrollment growth in the program slowed significantly." 

The disconnect between the projected growth in health expenditures as well as the insured population and the projected decrease in use and intensity of medical services could potentially be a result of a rise in preventive care services, assuming that the ACA provisions that address prevention are working as intended. Research shows the use of emergency departments has decreased in states that expanded the Medicaid program under the ACA.

The U.S. healthcare system has been anticipating the impact that the baby-boom generation will have on businesses and many have adopted new solutions to address the population's unique health needs, including technologies that allow for virtual visits and ride-sharing apps that make access to care more convenient. Yet in the government insurance program for seniors and individuals with disabilities, 2017 spending growth is projected to go from last year's rate of 5.0% up to 5.9%. CMS says this is "in part because the decline in utilization in inpatient hospital services is not expected to continue into 2017." The aging population is using more Social Security and requiring more Medicare coverage, which is in turn driving spending increases, the Congressional Budget Office (CBO) reported in August 2016

The chart in this tweet from Aaron Albright at the CMS Office of Communications shows how the impact of factors that are driving health spending growth has varied over the years:

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Filed Under: Health Law Finance
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