Healthcare leaders probably won’t remember yesterday’s date—but they will remember what was revealed yesterday, for its sheer gobsmacking impact: because yesterday, February 20, the actuaries in the Office of the Actuary inside the Centers for Medicare and Medicaid Services (CMS) released the information that they are projecting that total U.S. healthcare system expenditures will reach $5.963 trillion by 2027—just eight years from now. Oh, let’s just say $6 trillion. That’s right: six trillion, with a t.
As the actuaries noted in an article published online in Health Affairs, “National health expenditures are projected to grow at an average annual rate of 5.5 percent for 2018–27 and represent 19.4 percent of gross domestic product in 2027. Following a ten-year period largely influenced by the Great Recession and major health reform, national health spending growth during 2018–27 is expected to be driven primarily by long-observed demographic and economic factors fundamental to the health sector. Prices for health care goods and services are projected to grow 2.5 percent per year, on average, for 2018–27—faster than the average price growth experienced over the last decade—and to account for nearly half of projected personal health care spending growth. Among the major payers, average annual spending growth in Medicare (7.4 percent) is expected to exceed that in Medicaid (5.5 percent) and private health insurance (4.8 percent) over the projection period, mostly as a result of comparatively higher projected enrollment growth. The insured share of the population is expected to remain stable at around 90 percent throughout the period, as net gains in health coverage from all sources are projected to keep pace with population growth.”
What’s more, very worrisomely, the actuaries note that “Overall, national health spending is projected to grow at 5.5 percent per year, on average, for 2018–27 (exhibit 1). This is faster than the average growth rate experienced following the last recession (3.9 percent for 2008–13) and the more recent period inclusive of the Affordable Care Act’s major coverage expansions (5.3 percent for 2014–16). However,” they add, “it is slower than the rate throughout the nearly two decades preceding the Great Recession (7.3 percent for 1990–2007). Growth in gross domestic product (GDP) during the ten-year projection period is projected to average 4.7 percent. Because national health spending growth is expected to increase 0.8 percentage point faster, on average, than growth in GDP over the projection period, the health share of GDP is expected to rise from 17.9 percent in 2017 to 19.4 percent in 2027, with almost all of the increase in share expected after 2020.”
Most challenging of all, U.S. healthcare inflation is once again on the rise, after several years of low growth following the signing by President Obama of the Affordable Care Act. As the actuaries note in their report, “For 2020–27, growth in national health spending is expected to average 5.7 percent. This rate is faster than projected for 2019, and faster growth is generally evident for the underlying major payers and health care services and goods. The acceleration is in part due to faster growth in personal health care prices as measured by the Personal Health Care Price Index. Also contributing, they write, “is increasingly higher expected growth in utilization on the part of Medicare beneficiaries and those with private health insurance, the latter influenced by a lagged response to comparatively higher income growth during 2020–22. With respect to insurance coverage over 2020–27, growth in employer-sponsored health insurance enrollment is projected to be below that of population growth and decline for those purchasing insurance directly, which contributes to a slight decline in the insured share of the population to 89.7 percent by 2027.” In other words, at least this time, the private health insurers can’t be blamed for overall U.S. healthcare inflation.
Truly alarmingly, during the 2020-2027 period Medicare inflation will be running at 7.6 percent, compared to 7.1 percent in 2019, “primarily driven by an expectation of a continued rebound in growth in the use and intensity of services used throughout the period that is more consistent with the program’s long-term experience, compared to that of the past decade.” Translated from actuarial-ese, that means that the old patterns of Medicare utilization are roaring back, and that what has turned out to be a relatively brief respite from damaging inflation in that key federal program, is now fully over. Indeed, the actuaries note, “Medicare spending growth is projected to have increased 5.9 percent in 2018, compared to 4.2 percent in 2017, mainly because of faster per enrollee spending growth (3.1 percent in 2018 versus 1.7 percent in 2017). Increases in Medicare private health plan payments, as well as spending for fee-for-service hospital care and prescription drugs, underlie the projected acceleration.” In other words, even Medicare Advantage, where so much of the innovation within the Medicare program has been taking place, is going to be an area of challenge. What’s more, Medicare enrollment is growing at the same time, as the nation’s army of Baby Boomers age into the system.
Meanwhile, among the tricky cost factors underlying these trends will be increases in costs passed directly on to consumers, and inflation in healthcare staff wages. As the actuaries note, “From 2019 forward, a steady increase in relative personal health care price inflation is projected, as certain factors that contributed to low or negative growth in relative personal health care price inflation since 2011 are anticipated to be less influential in restraining prices over the next decade. Such factors include rising sensitivity to prices by consumers and insurers, especially for services subject to cost sharing; selective contracting by insurers; and improvements in productivity through the use of lower-cost providers in physician offices. Similarly, input price growth, including health-sector wages, is expected to accelerate as downward pressure on provider prices lessens.”
Honestly, all of this should alarm leaders across the U.S. healthcare industry. It’s clear that virtually every element in this landscape points to renewed strong healthcare cost inflation. We’ve got an aging population, we’ve got a healthcare consumer population tasked with assuming a greater proportion of payment for healthcare services (which itself leads to a range of perverse incentives, such as reluctance to seek some forms of primary care), we’ve got increasing labor costs in healthcare, we’ve got rising prescription drug prices. There isn’t a single area in which the U.S. healthcare system won’t be challenged by the coming cost cliff, all of whose factors lead to that $6 trillion figure for overall U.S. healthcare spending in 2027.
So we’ve reached a real moment here, and we as an industry and as a national healthcare system, absolutely have a burning platform for change. Having been in the industry for 30 years, I remember when industry experts were saying that $2 trillion in total annual U.S. healthcare spending would be absolutely unsustainable—and now we’re heading towards tripling that figure to $6 trillion, in the next eight years, with the Medicare program alone going from $800 billion a year in total cost, to $1.436 trillion (for a 55-percent total overall increase). And honestly, what would anyone’s reaction be to 64-percent inflation across an industry that already represented 17.9 percent of our gross domestic product in 2017, and is headed towards 19.4 percent?
So if there’s a single, unambiguous message here, it is this: this is the moment; and we’ve got our burning platform for change. And in all of this, I believe that healthcare IT leaders are in a fascinating position here, because they will be essential change agents in helping to control and master costs in the healthcare system, through providing the leaders of their organizations with the data they need to accomplish clinical transformation, operational transformation, and overall health system transformation. And any individuals and teams who have ideas for how to bend our national health system cost curve will be heroes—the world will be their oyster. Certainly, we at Healthcare Innovation will do our part to bring forward the people, organizations, and ideas that are making a difference in this landscape of transformative change and fierce urgency. I have no doubt that the next several years will be absolutely critical ones for our entire healthcare system, and for our country.
Are things interesting enough yet?
