U.S. health spending to jump in 2014

National health spending will accelerate in 2014, jumping to a 6.1 percent growth rate, as more individuals access health insurance under the Affordable Care Act, according to the Centers for Medicare & Medicaid Services.

Health reform changes taking effect in 2014, including enrolling individuals through insurance exchanges and expanding Medicaid, will drive more spending, as well as expectations that the economy will gain steam, CMS said in its projections released Wednesday.

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National health spending will increase 1.6 percentage points faster in 2014 than it would have without the ACA, said authors of the CMS national health spending estimates published in Health Affairs and discussed at a briefing. 

In 2014, over 11 million people will gain coverage, with 2.9 million through private insurance on the exchanges and about 8 million through Medicaid, said Stephen Heffler, director of the national health statistics group in the CMS Office of the Actuary. Some states anticipate expanding their Medicaid programs after 2014, so an additional 8.8 million people are expected to enroll in Medicaid by 2016.

In 2015, the spending will back off somewhat to a 5.8 percent growth rate and then steadily rise again, to 6.5 percent in 2022.

“Although the projected growth is faster than in the recent past, it is still slower than the historical rate over the long term,” said Gigi Cuckler, an economist for the CMS actuary and lead author of the study, at the briefing. 

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CMS expects health expenditures to remain modest in 2013 at 3.9 percent growth rate, muted by the continued sluggish economy, cost-sharing by consumers for private insurance along with their judicious use of medical services, and slow growth in Medicare and Medicaid spending.

In 2014, physician and clinical services and prescription drugs among the newly insured will contribute significantly to spending increases in Medicaid (12.2 percent) and private health insurance (7.7 percent). Physician and clinical services alone are projected to escalate 7.1 percent in 2014. Under current law, if the 25 percent cut in physician payment rates under the sustainable growth rate (SGR) formula takes effect in January, spending growth will be 4.7 percent.

Out-of-pocket spending by consumers will decline 1.5 percent in 2014 due to new or improved coverage with lower cost-sharing.

We expect the newly insured to be younger and healthier and therefore use more physician healthcare and prescription drugs than hospital services,” Cuckler said.

Hospital spending is expected to grow at 4.7 percent rate in 2014 from 4.1 percent in 2013, which was affected in part by sequestration, which reduced Medicare spending. ACA coverage expansion will drive hospital spending higher, but it will be offset somewhat by the slower Medicare hospital payment updates. In 2015, hospital costs will expand at 5.6 percent with continuously more individuals insured and the economy likewise accelerating.

The use of generics and the expiration of patents for popular brand-name drugs have taken a bite out of the growth in spending of prescription medications, with just a 0.6 percent increase in 2013. But prescription drug spending is expected to jump to 5.2 percent in 2014, driven by increases in the number of newly insured and those who move to more generous insurance plans. The improving economy and declining patent expiration cliff will also contribute to the increase.

Although growth in private health insurance spending will remain restrained in 2013 at 3.4 percent, it will accelerate to 7.7 percent in 2014, driven by the nearly 3 million individuals obtaining coverage principally through health insurance exchange plans and those who have obtained improved coverage. Private health insurance premiums are expected to accelerate to 6 percent, up from 3.2 percent in 2013 on a per enrollee basis.

In 2015, private health insurance spending will stay elevated at 6.2 percent as a result of continued enrollment by the newly insured in the exchange plans and faster economic growth. In later years, it will ease on down to 5.8 percent growth per year.

Medicare spending has remained low at 4.2 percent in 2013, muted by sequestration, which calls for 2 percent Medicare payment reductions through March 2022. But it will rebound to 5.1 percent unless the 25 percent SGR cuts kick in next year, which would translate to just a 2.4 percent Medicare growth rate. From 2015 to 2022, Medicare will average a 7.4 percent rate of increase, reflecting more eligible baby boomers and with that more utilization and price pressures, and the expiration of sequestration cuts.

This year, Medicaid spending growth increased to 4.8 percent based on higher enrollee costs because of their age and disability. Medicaid enrollment will soar by 8.7 million, nearly all as a result the ACA’s coverage expansion. Per enrollee spending is expected to decline by 2.8 percent in 2014 because most of those who take advantage of the increased coverage options will be non-disabled children and young adults. Medicaid spending will rise by 7.9 percent on average in 2015 and 2016, the report said. 

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