CMS Predicts Moderate Health Spending Growth

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By Nathaniel Weixel

July 28 — Health spending is projected to grow to nearly $5.5 trillion in the next 10 years, spurred on by the Affordable Care Act's coverage expansions, an aging population and a stronger economy, according to a July 28 report from the CMS.

In the report, published in the journal Health Affairs, actuaries at the Centers for Medicare & Medicaid Services projected spending on hospitals, drugs and insurance will grow 5.8 percent per year from 2014 to 2024—just over 1 percentage point faster than the gross domestic product (GDP) over that same period. As a result, the health spending share of the economy is projected to rise from 17.4 percent in 2013 to 19.6 percent in 2024, the report said.

Faster Growth, but Still Modest 

However, the report noted that although projected spending growth is faster than in recent years, the almost 6 percent average rate is still modest compared to the almost 9 percent average growth rate in the 30 years prior to the recession.

“Per-capita spending and medical inflation are all at historically very modest levels,” acting CMS Administrator Andy Slavitt said in a July 28 statement. “We cannot be 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.”

According to the report, much of the spending growth is attributed to a higher percentage of the population becoming insured. CMS actuaries projected over 92 percent of the population will have insurance by 2024, compared with 86 percent in 2013. While more people are getting coverage, annual growth in per-enrollee expenditures is expected to remain slow in historical terms, the CMS said.

Payment Reforms

Dan Mendelson, chief executive officer of consulting firm Avalere Health, told Bloomberg BNA July 28 the spending increases shouldn't be viewed as a crisis, and the payment reforms built into the ACA—which have bipartisan support in Congress—will be part of the solution to control costs. The current administration has overseen a surge in insurance enrollment, and it will be up to the next one to make sure the costs of the enrollment are contained, Mendelson said.

“This kind of growth will force action,” Mendelson said, but it's an “uptick, not a crisis.”

Health care is also a labor-intensive industry, he said, so when labor costs go up in a hospital, those added costs are passed to consumers. There needs to be a drive to control labor costs, Mendelson said.

Medicaid Expansion 

The CMS actuaries projected that Medicaid spending grew 12 percent in 2014, primarily as a result of eligibility expansion under the ACA. That spending is projected to contribute most significantly—compared to spending for other payers—to the projected acceleration in national health spending growth, the CMS said.

Total Medicaid enrollment is projected to have increased 12.9 percent, to 66.5 million in 2014 alone. However, since the newly insured are expected to be healthier than the average currently enrolled Medicaid beneficiary, per beneficiary spending growth is projected to have slowed sharply from 3.8 percent in 2013 to negative 0.8 percent in 2014. Looking ahead, for 2015 to 2024, Medicaid spending growth is projected to be 5.9 percent per year on average, “reflecting more gradual growth in enrollment as well as increased spending per beneficiary due to aging of the population,” the CMS said.

Spending on private health insurance premiums is expected to rise as well, the actuaries said. In 2014 spending was projected to grow 6.1 percent, to $1 trillion, up from 2.8 percent in 2013. The rise was because more people were enrolling in private plans, but also because those people were paying more out-of-pocket, according to the actuaries. To control costs, employers in recent years have increasingly been offering plans with high cost-sharing requirements; in 2014, roughly one in five employer plans were high deductible plans, actuaries said. As a result, many consumers are still being cautious of how much care they use because of cost concerns, the report said.

Drug Costs 

Prescription drug costs were one of the main drivers of costs in 2014, due to new specialty drug treatments for hepatitis C and the smaller effect of brand-name drugs losing their patent exclusivity. Total prescription drug spending rose by nearly 13 percent to $305 billion in 2014, and is predicted to rise to $328 billion in 2015.

Mendelson told Bloomberg BNA the report doesn't take into account the value of those high-cost drugs, such as Gilead's Sovaldi and Harvoni drugs, which can cure hepatitis C. Commenting on the controversy over drug costs, Mendelson said that policy makers asked for drug innovation, and the irony is now that they have it, they are questioning the cost of it.

Sean Keehan, the report's lead author and an economist in the CMS Office of the Actuary, told reporters July 28 projecting future drug cost growth isn't easy.

“We don't know which drugs will be approved and how effective they will be,” Keehan said.

To contact the reporter on this story: Nathaniel Weixel in Washington at

To contact the editor responsible for this story: Brian Broderick at