CMS predicts healthcare spending will skyrocket to $6 trillion by 2027

National health expenditure growth is expected to double in the next eight years and reach nearly $6 trillion by 2027, according to a report released today by the Office of the Actuary at the Centers for Medicare and Medicaid Services.

The projected average annual growth of 5.5 percent outpaces expected growth in gross domestic product by 0.8 percent. As a result, the health share of the economy is projected to climb to 19.4 percent by 2027 -- up from 17.9 percent in 2017.

WHY IT MATTERS

Price growth for healthcare goods and services is expected to be a significant factor and is projected to increase an average of 2.5 percent per year, accounting for nearly half of projected personal healthcare spending growth.

This compares to increases in prices for medical goods and services of 1.1 percent during the period of 2014-2017.

Population growth and changing demographics account for the remainder of the projected average annual growth in both spending and enrollment. These are driven by economic and demographic factors, such as income growth and enrollment shifts from private health insurance to Medicare, as baby boomers continue to age into the program.

Spending growth for prescription drugs is projected to generally accelerate over 2018-2027, in an average of 5.6 percent, mostly as a result of faster utilization growth, the report said. This includes factors such as efforts on the part of employers and insurers for better medication adherence among those with chronic conditions; changing pharmacotherapy guidelines; faster projected private health insurance spending growth in lagged response to higher income growth; and an expected influx of new and expensive innovative drugs into the market towards the latter stage of the period.

All of the projections do not assume potential legislative changes over the projection period.

HERE'S THE EXPECTED IMPACT

Economic and demographic trends will increase health spending growth over the next decade.

Medicare spending is expected to accelerate the fastest among payers due to the aging baby boomer population.

THE LARGER TREND

Healthcare spending over the next decade contrasts with that of the prior 10 years which was affected by the 2008 recession and the implementation of health reform legislation.

The CMS Office of the Actuary releases an analysis annually of how Americans are expected to spend their healthcare dollars in the years ahead.

Similar to the findings in last year's report, the report found that by 2027, federal, state and local governments are projected to finance 47 percent of national health spending, an increase of 2 percent from 45 percent in 2017.

WHAT IT MEANS FOR PAYERS

The insured share of the population is expected to remain stable at around 90 percent throughout the decade, as net gains in health coverage generally keep pace with population growth, the report found.

Medicare growth will top that of Medicaid and private insurance, due to higher enrollment from baby boomers.

Over the next decade, the average annual spending growth in Medicare is 7.4 percent, compared to Medicaid's 5.5 percent and the 4.8 percent of private health insurance.

Medicaid expansion during 2019 in Idaho, Maine, Nebraska, Utah, and Virginia is expected to result in the first acceleration in growth in spending for the program since 2014, from 2.2 percent in 2018 to 4.8 percent in 2019.

Medicaid spending growth is then projected to average 6 percent for 2020 through 2027, as the program's spending patterns reflect an enrollment mix of more expensive aged and disabled enrollees.

Private health insurance and out-of-pocket spending growth is projected to average 4.8 percent, slowest among the major payers, which is partly due to  the baby-boomers transitioning from private coverage into Medicare.

Out-of-pocket expenditures are also projected to grow at an average rate of 4.8 percent over 2018-2027 and representing 9.8 percent of total spending by 2027, down from 10.5 percent in 2017.

WHAT PROVIDERS NEED TO KNOW

Hospital spending growth is projected to average 5.6 percent for 2018-2027. This includes a projected acceleration in 2019, to 5.1 percent from 4.4 percent in 2018, reflecting the result of faster expected growth in both Medicare, due to higher payment updates and Medicaid expansion in five states.

Enrollment declines in private health insurance will be partly due to the repeal of the individual mandate.

Physician and clinical services spending is projected to grow an average of 5.4 percent per year through 2027. This includes faster growth in prices over 2020-2027 for physician and clinical services due to anticipated rising wage growth related to increased demand from the aging population.

ON THE RECORD

"As a result of economic and demographic trends, we expect health spending growth to increase over this next decade," said Andrea Sisko, an economist in the Office of the Actuary at CMS. "While Medicare spending is expected to accelerate the fastest among payers and contribute to the increase, growth in health prices and disposable personal income are also significant contributors." 

Twitter: @SusanJMorse
Email the writer: susan.morse@himssmedia.com