National health expenditure growth is expected to average 5.5 percent annually from 2018 to 2027, reaching nearly $6 trillion by 2027, according to a report published on Feb. 20 by the independent Office of the Actuary at the Centers for Medicare & Medicaid Services (CMS).
The report projects the health share of Gross Domestic Product (GDP) to rise from 17.9 percent in 2017 to 19.4 percent by 2027, as growth in national health spending is projected to be faster than projected growth in GDP by 0.8 percentage points over the same period.
According to the analysis, the outlook for national health spending and enrollment over the next decade is expected to be driven primarily by:
• Key economic factors, such as growth in income and employment, and demographic factors, such as the baby-boom generation continuing to age from private insurance into Medicare; and
• Increases in prices for medical goods and services, which are projected to grow 2.5 percent over 2018-2027 compared to 1.1 percent during the period of 2014 to 2017).
Similar to the findings in last year’s report, this report found that by 2027, federal, state and local governments are projected to finance 47 percent of national health spending, an increase of 2 percentage points from 45 percent in 2017. As a result of comparatively higher projected enrollment growth in Medicare, average annual spending growth in Medicare (7.4 percent) is expected to exceed that of Medicaid (5.5 percent) and private health insurance (4.8 percent).
Underlying the strong average annual Medicare spending growth are projected sustained strong enrollment growth as the baby-boomers continue to age into the program and growth in the use and intensity of covered services that is consistent with the rates observed during Medicare’s long-term history, according to the report.
In a Health Affairs article that accompanied the report, various CMS Office of the Actuary staff wrote, “Medicare spending growth is expected to accelerate and be the fastest among the major payers, reflecting not only the continued enrollment shift of the baby-boom generation into the program but also the growth rate for use and intensity, which is projected to gradually increase toward the rates observed during Medicare’s long-term history.”
Meanwhile, hospital spending growth is projected to average 5.6 percent for 2018 to 2027, the analysis revealed. This includes a projected acceleration in 2019, to 5.1 percent from 4.4 percent in 2018, reflecting the net result of faster expected growth in both Medicare (higher payment updates) and Medicaid (as a result of expansion in five states), but slower projected growth in private health insurance as enrollment declines slightly due to the repeal of the individual mandate.
Additionally, physician and clinical services spending is projected to grow an average of 5.4 percent per year over 2018 to 2027. This includes faster growth in prices over 2020 to 2027 for physician and clinical services due to anticipated rising wage growth related to increased demand from the aging population, per the report.