Health Expenditures to Keep Rising

In 2011, the passed with two primary goals: (1) expanding coverage and (2) bending the cost curve. Exactly how much healthcare savings it will produce is still up for debate and is the subject of a recent analysis published in Health Affairs. In particular, the analysis projects how health care expenditures may be affected with continued implementation of the law over the next 10 years. Although national health expenditures and the share of the economy used towards health care are expected to continue to rise, the healthcare expenditure growth rate is expected to be slower than that which was seen prior to the most recent economic depression.

The analysis used actuarial and economic modeling as well as current demographic data to project changes and offer a timeline on how beneficiary enrollment, private insurance, economic growth, and medical goods and services will alter healthcare expenditure growth each year between 2015 and 2025.

The study estimates that health care’s share of the economy will increase from 17.5% in 2014 to 20.1% by 2025 and will ultimately outpace GDP growth by 1.3%. By 2025, 47% of healthcare costs will be paid for by the U.S. government.

Initially, the continued growth in healthcare expenditures has been largely attributed to expansions in healthcare coverage afforded by the ACA. While increased beneficiary enrollment will likely continue to have an effect, the reasons for rising expenditures are multifactorial. An ever-aging population, economic growth, and increased spending from private health insurance and pharmaceutical companies are all expected to contribute to the ongoing rise in healthcare expenditures. Uncertainty still exists in how expansion, proposed legislative changes, and the behavioral responses of healthcare manufacturers, consumers, and private insurance companies will respond over time to the longer term effects of the ACA.

In the next phase, policy makers will need to consider how healthcare expenditures can be controlled with particular focus on and Medicaid spending, as these are expected to have the largest growth rate gains, and strategies targeting long term care expenses to address the expanding health care needs of our aging population.

commentary by Theresa E. Tassey, MD, MS. She is the Health Policy and Leadership Fellow at the University of Maryland Department of Emergency Medicine.

Abstract

Health spending growth in the United States for 2015–25 is projected to average 5.8 percent—1.3 percentage points faster than growth in the gross domestic product—and to represent 20.1 percent of the total economy by 2025. As the initial impacts associated with the Affordable Care Act’s coverage expansions fade, growth in health spending is expected to be influenced by changes in economic growth, faster growth in medical prices, and population aging. Projected national health spending growth, though faster than observed in the recent history, is slower than in the two decades before the recent Great Recession, in part because of trends such as increasing cost sharing in private health

insurance plans and various Medicare payment update provisions. In addition, the share of total health expenditures paid for by federal, state, and local governments is projected to increase to 47 percent by 2025.

PMID: 27411572 Keehan, SP, et al. Health Affairs. 2016; 35 (8): 1522-31.