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Medical Spending Projected to Rise in 2014 and Beyond, Report Says

By Kerry Young, CQ Roll Call

September 3, 2014 -- With major components of the health care law taking effect and the economy gaining steam, the United States is hitting a turning point in medical spending.

Growth in national health expenditures is projected to rise 5.6 percent this year to $3.06 trillion, according to a federal report released last week. That marks a rebound after the sluggish economy kept medical inflation at near-historic lows in recent years.

If the Centers for Medicare and Medicaid Services' (CMS) number crunchers are proven right, 2014 will mark the first time in six years that the growth rate for national health expenditures tops 4 percent. The 2013 rate is estimated at 3.6 percent.

The widely cited annual estimate is likely to stir a new round of debate about the Affordable Care Act (PL 111-148, PL 111-152). Republican opponents of the law have questioned administration claims that it is helping bend the medical cost curve downward.

In their recent paper published in Health Affairs, CMS researchers say that the share of the national economy dedicated to health care, measured in terms of gross domestic product, will rise from 17.2 percent in 2012 to 19.3 percent in 2023.

Yet, while health spending is set to grow faster than it has in recent years, it still may rise more slowly than it did in the years before the overhaul took effect. The average growth rate for national health expenses was 7.2 percent in the period of 1990 to 2008, but could be 6 percent in the period of 2015 to 2023.

Multiple Factors

CMS researchers cite three factors behind the projected rise: More people are expected to gain access to health coverage under the law; the economy will strengthen; and the U.S. population, particularly baby boomers, will age and thus need more medical services.

CMS stressed that its projections remain subject to uncertainty, reflecting both the normal variability in estimating economic trends and the current shifts happening within the health care system.

The massive enrollment of Americans in private insurance plans and Medicaid through federal health exchanges in recent months is the most visible change occurring under the law. The measure also is spurring broader tests of new methods for practicing medicine, and the fiscal effects may not be know for many years.

"The impacts of reform on the behavior of consumers, insurers, employers and providers will continue to unfold throughout the projection period and beyond," the CMS researchers said in the paper.

But the health care law isn't the only federal statute affecting health spending.

The sequester cuts arising from the 2011 Budget Control Act (PL 112-25) affect Medicare, by slowing growth outlays for the federal health program for the elderly and disabled to 3.3 percent from 4.8 percent, according to CMS.

The agency's researchers also drilled beyond the general condition of the economy and the sequester to find causes for the recent slowdown in health spending. The expiration of patent protection in recent years of several blockbuster drugs contributed, the authors noted, without naming any products. Among the drugs facing new generic competition during the health cost slowdown was Pfizer Inc.'s Lipitor cholesterol pill, once the world's best-selling drug.

Conversely, "expensive new hepatitis C treatments" will contribute to the acceleration in growth in 2014, the report says. Such products include Gilead Sciences Inc.'s Sovaldi, which has a wholesale price of $1,000 a pill.

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