Growth in National Health Expenditures Projected to Remain Steady Through 2017; Health Spending Growth
Expected to continue to outpace economic growth and growth in general inflation.
Growth in health care spending in the United States is projected to be 6.7 percent in 2007, according to a report issued today by the Centers for Medicare and Medicaid Services (CMS). Average annual growth is expected to remain near that rate through 2017, the report said.
The analysis was prepared by CMS’s Office of the Actuary and published online by the journal Health Affairs. Over the full projection period (2007-2017), annual growth in health spending is anticipated to be higher than annual growth in both the overall economy (4.9 percent) and in general inflation (2.4 percent).
As a percentage of gross domestic product, known as GDP, health care spending is projected to increase to 16.3 percent in 2007 from 16.0 percent in 2006. By the end of the projection period, health care spending in the United States is expected to reach just over $4.3 trillion and comprise 19.5 percent of GDP.
For health spending through public programs, growth is anticipated to decelerate to 6.8 percent in 2008 after the 8.2 percent growth in 2006 that was largely influenced by the implementation of the Medicare Part D drug benefit. Public health spending growth is then expected to gradually increase toward the end of the projection period, as the leading edge of the baby boom generation begins to enroll in Medicare.
“The cost of health care continues to be a real and pressing concern. Making sure we are paying for high quality health care services, not just the number of services provided, is just one of the most critical issues facing the American public and the federal government now and in the future,” said CMS Acting Administrator Kerry Weems. “This projection of health care spending reminds us that we need to accelerate our efforts to improve our health care delivery system to make sure that Medicare and Medicaid are sustainable for future generations of beneficiaries and taxpayers."
Through 2017, growth in health spending is expected to outpace that of GDP by an annual average of 1.9 percentage points. This projected differential in growth rates is smaller than the 2.7 percentage-point average difference experienced over the past 30 years, but wider than the average differential (0.3 percentage point) observed for 2004 through 2006.
Growth in private health expenditures (which includes out-of-pocket and private health insurance spending) is expected to rebound to 6.3 percent in 2007 following the somewhat slow growth of 5.4 percent in 2006 that was related to the implementation of Medicare Part D. Private spending growth is expected to peak in 2009 at 6.6 percent, then decelerate through 2017 in response to projected slower economic growth in the latter years of the projection period.
Prescription drug spending growth is expected to slow to 6.7 percent in 2007 (from 8.5 percent in 2006), driven largely by slower drug price growth. For 2008 through 2017, prescription drug spending is projected to accelerate due in part to the projected leveling off of growth in the generic dispensing rate and evolving treatment guidelines that call for earlier introductions of pharmacotherapy. The Medicare Part D benefit, on the other hand, is expected to have very little impact on total national health expenditure growth through 2017, as per capita spending growth for Medicare beneficiaries is expected to be identical to that of the rest of the population.
Hospital spending growth is expected to accelerate from 7.0 percent in 2006 to 7.5 percent in 2007, partly attributable to higher Medicaid payment rates. Hospital spending growth is then projected to decrease slightly though the rest of the projection period as the growth in demand for hospital services is expected to slow.
In December 2007, Congress passed the Medicare, Medicaid, and S-CHIP Extension Act (MMSEA), providing a 0.5 percent increase to the Medicare Physician Fee Schedule (MPFS) for the first six months of 2008, followed by a 10.6 percent reduction in the MPFS for the second six months of 2008. This CMS projection of health spending growth does not include the impacts of the MMSEA, but rather features a new simulation of an annual zero percent increase to the MPFS and compares that to the anticipated impact of negative payment updates that were in the law before the MMSEA was enacted. Based on this simulation, by 2017, annual zero percent updates to the MPFS would be expected to result in Medicare physician spending and overall Medicare spending totals that are 25.3 percent and 6.4 percent higher, respectively, when compared to the expected spending associated with negative payment updates to the MPFS.
The effect of a zero percent MPFS update on total health spending is projected to be much smaller, however, with total health care spending estimated to be 0.7 percent higher in 2017.
Medicare spending growth is expected to slow to 6.5 percent in 2007, following the 18.7 percent growth experienced in 2006. Nearly all the projected slowdown in growth for Medicare in 2007 is related to the new spending that was devoted to the Medicare Part D benefit in 2006, spending that simply continues into 2007 and is no
longer new to the program. Also contributing modestly to the projected slowdown are reduced increases in Medicare Advantage plan payments for 2007 as a result of risk adjustments made to these payments. In the latter years of the projection, Medicare growth is expected to accelerate, reaching 8.0 percent by 2017, as the baby boom generation begins to enroll in the program.
Following a decline of 0.9 percent growth in 2006 (associated with the shift in drug coverage for beneficiaries dually-eligible for Medicaid and Medicare to Medicare Part D), Medicaid spending growth is projected to be 8.9 percent in 2007. Aside from the one-time transition effects of Medicare Part D, contributing to this expected acceleration in growth are increases to payment rates for hospitals and physicians. On average, Medicaid spending is anticipated to grow 7.9 percent per year over the projection period and account for 16.8 percent of total health care spending by 2017.
The health care spending projection data can be found on the CMS Web site.