New projections are painting a classic good news/bad news scenario when it comes to healthcare expenditures. The good news: They are expected to grow over the next decade at a slower rate than in many past periods. The bad news: The estimates still run higher than the average expected growth of the gross domestic product.
According to Centers for Medicare and Medicaid Services (CMS) projections published this week in Health Affairs, health care expenditures are expected to grow at an average annual rate of 5.8 % over the next decade, topping out at $5.4 trillion in 2024. During that same time period, the GDP is only expected to grow at an average rate of 4.7%.
In the years following the recession, healthcare expenditures grew at historically low rates of around 4%. However, loss of income and insurance coverage, slow health-specific price growth and increased use of generic drugs may have slowed spending during those years.
CMS says there are a number of factors affecting expenditure growth over the next several years, including major insurance coverage expansions and premium subsidies under the Affordable Care Act (ACA), an aging population and anticipated economic growth.
No surprise: Prescription drugs a major factor
Prescription drug spending may be another major contributor. In 2014, it rose by 12.6%, its highest rate of growth since 2002. In comparison, growth for prescription drugs was only 2.5% in 2013. One of the biggest reasons for the growth in drug expenditures was the debut of costly new treatments for hepatitis C. New treatments for cancer and multiple sclerosis were also contributors.
Despite last year’s big hike in prescription drug spending, growth is projected to increase by just 7.6% in 2015. "The report is very clear that last year was unique and it was driven in part by expansion of health care coverage and new cures that are available to patients," Robert Zirkelbach, senior vice president for communications at PhRMA, told The Washington Post.
There are a few gray areas in the CMS projections. For example, the continued flurry of industry mergers and acquisitions could have an effect on healthcare spending in the coming years. And more new, costly drugs could be approved over the next decade. Sean Keehan, a CMS economist and lead author of the projections report said in a press conference that CMS is well aware of the concerns over drug costs, “We are monitoring the different new drugs to see what impact they may have on spending growth,” he said.
It’s important to note that the healthcare spending outlook isn’t all bad. Although the projected growth rates are higher than in the years following the recession, they’re still lower than in the three decades prior when healthcare spending was growing at an average rate of 9% a year.
“Growth in overall health spending remains modest even as more Americans are covered, many for the first time,” CMS Acting Administrator Andy Slavitt said in a press release. “Per-capita spending and medical inflation are all at historically very modest levels.”
But even so, Slavitt also said it’s important that the healthcare industry does not become complacent. “The task ahead for all of us is to keep people healthier while spending smarter across all categories of care delivery so that we can sustain these results.”