Snapshot of Health Care Spending Projections Prior to the Coronavirus

Blog Post
Friday, March 27, 2020

The health care sector in the U.S. is facing a tremendous amount of uncertainty which will last for many months more (at a minimum). While we acknowledge the difficulties of knowing what's next due to the coronavirus and its impact on health care spending, it’s worth noting the recent update of annual projections from the federal government's chief health care actuaries. 

Their snapshot picture of where health care was headed prior to the coronavirus health emergency projected health care spending continuing its upward climb, taking a larger and larger share of the nation’s economic activity over the next decade. They projected the health care sector to grow from 17.7 percent of GDP in 2018 to 19.7 percent by 2028. They expected National Health Expenditures (NHE) to grow by an average of 5.4 percent a year, about 1.1 percentage points faster, on average, than the expected growth of the economy over the same period.

The actuaries suggested that the next decade would see faster health care spending growth than the nation experienced over the 2014-2018 period. They pinpoint the rise of health care prices as their main culprit -- representing 43 percent of the growth in personal health care spending, and an increase in use and intensity of health care services as accounting for about one-third of the growth.

 

factors accounting for growth in personal health care spending

 

Medicare will see the fastest growth in spending among the major payers for health care at 7.7 percent annually. That Medicare growth is largely due to increasing enrollment as the program faces its peak for new entrants due to the aging of the baby boom generation. Interestingly, the actuaries project enrollment growth will begin to slow towards the end of the projection period as the final cohort of the baby boom generation ages into eligibility.

The actuaries point out that by 20208, the government is projected to pay for almost half of all health care and Medicare beneficiaries will “consume $1 out of every $4 spent.”

This demographic underlying health care trends will be with us regardless of whatever unique measures are taken to combat the coronavirus, and thus still require attention and a continuing of discussions about controlling systemic health care costs and price inflation.

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