CMS Actuary Office releases projections on U.S. healthcare spending

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    Whitfield L. Knapple, MD, FACG
    Chair, Legislative and Public Policy Council

    On Wednesday, the CMS Actuary Office stated that U.S. health care spending is projected to grow from 4% in 2016 to 5% this year, and 5.7 % by 2021; on track to spend about one in every five dollars on health care by 2026, or $5.7 trillion (up from $3.3 trillion in 2016).

    According to CMS, the aging baby boomers will cause Medicare spending to increase by almost 8% a year by the end of the decade, and a general increase in prices will spur spending.  Among the major payers of health care, “spending growth for Medicare and Medicaid is anticipated to continue to outpace that for private health insurance, mainly because of faster enrollment growth associated with the aging of the population.”

    Here are some more highlights from the report, “National Health Expenditure Projections, 2017–26: Despite Uncertainty, Fundamentals Primarily Drive Spending Growth.”

    Medicare: Medicare spending growth is projected to have accelerated to 5% in 2017 (from 3% in 2016), largely because of faster projected growth in spending per beneficiary. Recent slow growth in Medicare spending through 2016 was influenced by both low utilization (particularly of hospital services) and slow growth in payment rates (partly the result of modest inflation and ACA-related payment adjustments).  In 2017, however, growth in the use of services and increases in payment updates are projected to have begun to contribute to faster overall Medicare spending growth. Medicare enrollment growth is also expected to have contributed to the acceleration, with a projected rate of 3.2% in 2017 after a rate of 2.8% in 2016. Compared to 2018, Medicare spending is projected to grow 2 percentage points more rapidly on average during 2019–20, at 8%.  Of note for ACG, according to the report, “one factor contributing to this acceleration is incentive payments made to physicians under the Medicare Access and CHIP Reauthorization Act (MACRA) of 2015.”

    Commercial Insurance:  Total private health insurance spending is projected to have grown 5% in 2017, compared to 5% in 2016.  According to CMS, this reflects faster growth in the net cost of private health insurance — or the amount of private health insurance spending attributed to nonmedical expenses, such as administrative costs, taxes, net gains or losses, to reserves, and profits.  This increased 12.8% in 2017 (from 3.3 % in 2016). One reason is that “Marketplace” premiums were priced higher in 2017 to account for previous underpricing, given the relative health status of the population that enrolled— which suggests that these plans are on track to regain profitability in 2017.  Private health insurance spending growth is projected to slow to 4.8% in 2018. This slowdown is due to a deceleration in growth in the net cost of private health insurance (5.6 %), mainly from slowing growth in the net cost of health insurance in the Marketplaces in 2018.  Spending for private health insurance is projected to grow relatively more slowly in 2021–26, at 4.7% on average. Growth in private health insurance enrollment is projected to remain modest and average just 0.4% for 2021–26.

    Medicaid: Medicaid expenditures are projected to have grown more slowly in 2017, at 2.9%, after increasing 3.9% in 2016. Influencing this trend is an anticipated reduction in 2017 of Medicaid’s net cost of health insurance spending (or the difference between payments received by Medicaid managed care organizations and the benefits paid on behalf of their enrollees). Medicaid spending is projected to increase by 4 percentage points more rapidly in 2018, at a projected rate of 6.9%. Growth in the net cost of health insurance spending for Medicaid principally drives this trend, which is a result of smaller recoveries of risk-mitigation payments in 2018 than in 2017.   Growth in Medicaid spending is projected to average 6.1% over 2021–26, a somewhat faster average rate than that of 5.8 % for 2019–20.

    Whitfield L. Knapple, MD, FACG

    Chair, ACG Legislative and Public Policy Council

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