Health Care Spending to Grow Faster Than Economy

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Health care spending will continue its upward climb, taking a larger and larger share of the nation’s economic activity over the next decade, according to new annual projections from the federal government’s chief health care actuaries.

The health care sector is projected to grow from 17.9 percent of GDP in 2017 to 19.4 percent by 2027. Over the period of 2018-2027, the actuaries expect National Health Expenditures (NHE) to grow by an average of 5.5 percent a year, about 0.8 percent faster than the expected growth of the economy over the same period.

The growth rate will be driven by an aging population and income growth — what the actuaries call “long-observed demographic and economic factors.” That is in contrast to the more episodic forces that have heavily influenced the prior decade’s health care spending. These forces include legislative changes from the Affordable Care Act and Medicaid expansion, and changes in the insurance and prescription drug industry.

Medicare will see the fastest growth in spending among the major payers for health care at 7.4 percent annually, compared to Medicaid (5.5 percent) and private health insurance (4.8 percent). 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.

However, Medicare, Medicaid and private insurance are all projected to grow at about the same annual rate on a per-enrollee basis.

Health care prices are projected to grow even faster over the next decade than they have in recent years, accounting for over half of the growth in personal health care spending. The use and intensity of health care services will account for about one-third of the growth in spending.

The health care services where spending will grow the most include home health care and nursing home care, prescription drugs and medical equipment.

Ideally, the Trump administration and Congress will work on plans to attack some of the drivers of health care spending growth.

The administration, in its proposals on prescription drugs and bundled payments for health care services, has leaned towards supporting some efforts that may prove to be effective. However, the degree to which the administration will follow through on those proposals and the degree to which Congress will accept or improve them remain to be seen.

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