National health expenditure is expected to grow an average of 5.6% annually from 2016 through 2025, according to a report published by Health Affairs (authored by the Centers for Medicare & Medicaid Services’ (CMS) Office of the Actuary (OACT)).
National health spending growth is projected to outpace projected Gross Domestic Product (GDP) growth by 1.2%. The report also projects that the health share of GDP will rise from 17.8% in 2015 to 19.9% by 2025. Growth in national health expenditures over this period is likely to be largely influenced by faster growth in medical prices, as compared to recent historically low growth.
For 2016, the report notes that total health spending is projected to have reached nearly $3.4 trillion, a 4.8% increase from 2015. The report also found that by 2025, federal, state and local governments are projected to finance roughly 47% of national health spending, a slight increase from 46% in 2015.
“After an anticipated slowdown in health spending growth for 2016, we expect health spending growth to gradually increase as a result of faster projected growth in medical prices that is only partially offset by slower projected growth in the use and intensity of medical goods and services,” says Sean Keehan, the study’s first author. “Irrespective of any changes in law, it is expected that because of continued cost pressures associated with paying for health care, employers, insurers, and other payers will continue to pursue strategies that seek to effectively manage the use and cost of health care goods and services.”
Additional findings from the report include:
- Total national health spending growth: Growth is projected to have been 4.8% in 2016, a bit slower than the 5.8% growth in 2015, likely because of slower Medicaid and prescription drug spending growth. In 2017, total health spending is projected to grow by 5.4%, expected to be led by increases in private health insurance spending.
- Medicare: Medicare spending growth is projected to have been 5.0% in 2016 and is expected to average 7.1% over the full projection period of 2016 through 2025. Faster-than-expected growth after 2016 primarily reflects utilization of Medicare-covered services increasing to approach rates closer to Medicare’s longer historical experience.
- Private health insurance: Spending growth is projected to have slowed from 7.2% in 2015 to 5.9% in 2016, a trend that is related to slower growth in private health insurance enrollment. Spending growth is projected to increase to 6.5% in 2017, due in part to faster premium growth in Marketplace plans related to previous underpricing of premiums and the end of the temporary risk corridors.
- Medicaid: Projected spending growth slowed significantly in 2016, down to 3.7%, down from 9.7% in 2015, largely reflecting slower growth in Medicaid enrollment. Spending growth is expected to accelerate and average 5.7% for 2017 through 2025 as projected per-enrollee spending growth rises over that timeframe. The increasingly larger share of the Medicaid population who are aged and disabled and who tend to use more intensive services is likely to drive that impetus.
- Medical price inflation: Medical prices are expected to increase more rapidly after historically low growth in 2015 of 0.8% to nearly 3% by 2025. This faster projected growth in prices is influenced by an acceleration in both economy-wide prices and medical specific prices and is projected to be partially offset by slowing growth in the use and intensity of medical goods and services.
- Prescription drug spending: Drug spending growth is projected to have been 5% in 2016, following growth of 9% in 2015, mainly due to slowing use of expensive drugs that treat Hepatitis C. Growth is projected to average 6.4% each year for 2017 through 2025, likely influenced by higher spending on expensive specialty drugs.
- Insured Share of the Population: The proportion of the population with health insurance is projected to increase from 90.9% in 2015 to 91.5% in 2025.