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CMS Actuary: U.S. Health Spending to Grow More Slowly over Next Decade

By John Reichard, CQ HealthBeat Editor

September 18, 2013 -- Despite coverage expansion under the health law, national health care expenditures will grow by a lower yearly rate over the next 10 years than they have in previous decades, according to government economists.

Overall health spending in the U.S. will grow at an average annual rate of 5.8 percent from 2012 to 2022, according to the projections by the Office of the Actuary at the Centers for Medicare and Medicaid Services (CMS). That compares to an average spending growth rate of 7.4 percent per year from 1990 through 2006.

Eleven million uninsured Americans will gain coverage in 2014 when Medicaid expands in about half the states and health insurance becomes mandatory for most Americans, the study projected. Another 8 million will get coverage in 2015, it added. By 2022, there will be 30 million fewer uninsured Americans, it estimates.

Also noteworthy in the new analysis: an eye-catching decline in national prescription drug spending, which CMS analysts predicted will end with the expansion of health insurance coverage.

The analysis, posted last week on the website of the policy journal Health Affairs, also shows that Medicare spending growth fell to 4.6 percent in 2012, down from 6.2 percent in 2011—despite increased enrollment growth. Meanwhile, Medicaid spending grew only 2.2 percent in 2012. Both programs will see faster growth rates as their enrollments expand over the next decade, however.

Issued annually, the CMS projections are widely quoted in health policy circles and are viewed as authoritative, while subject to inaccuracies as are all economic forecasts.

Last year, for example, the same office predicted health spending would grow about 7 percent in 2014, with the expansion of coverage. But its new figure is 6.1 percent for next year. The revised estimate takes into account the 2012 Supreme Court ruling on the health law (PL 111-148, PL 111-152), effectively making it optional for states to expand their Medicaid programs.

CMS economists assumed in their new projections that 45 percent of the Americans who would potentially be eligible for expanded Medicaid under the health law live in states that actually will expand the program in 2014. They are assuming that figure will climb to 65 percent in 2015 and in subsequent years.

The study isn't a warning that the health law will cause a dramatic spike in national health spending. Nor does it support the conclusion that the overhaul is slamming the brakes on spending by streamlining health care delivery.

It projects that health care as a share of the gross domestic product will rise to 19.9 percent in 2022 from its level of 17.9 percent in 2011. The health law will "add approximately 0.1 percentage point to average annual health spending growth over the full projection period, and increase cumulative health spending by $621 billion," the study said.

Whether health spending will pick up sharply as the economy improves is now hotly debated, with a growing number of economists saying they see "structural" changes that will lessen the effects of economic growth. These changes include higher deductibles and other forms of cost-sharing and growing efforts by physician practices to better coordinate the treatment of chronic diseases.

Economists Cautious About Causes

But during a press briefing, the economists said they are being cautious about ascribing a large impact to structural changes. And they leaned in their analysis toward assuming that the waxing and waning of the economy has a significant impact on whether health spending rises or falls.

They said they examined 50 years of data on the link between the state of the economy and health spending patterns. Based on that analysis, when the economy improves substantially "we would expect health spending to respond," said CMS economist Gigi Cuckler.
"Based on that longstanding relationship, we're not convinced that relationship has been broken," she added.

In the near term, spending growth is modest.

"In 2012 national health spending is estimated to have reached $2.8 trillion and to have grown 3.9 percent—the same rate observed in 2011," the study said. The low rate in 2012 "reflects the persistent effects of the recession and the modest recovery."

The slower growth over the next decade than in the prior two decades also in part is driven by lower projected economic growth, said Stephen Heffler, who oversees the statistics group in the Office of the Actuary.

"It's also affected by what the inflation outlook is going forward and that over the next decade is lower that what we've experienced over the longer run history," Heffler said.

He also noted that while health spending has grown 2 percentage points faster than the GDP, historically the growth rates for GDP and health spending are beginning to converge, something to be expected as health care becomes such a large part of the economy, he said. The 10-year projection assumes health spending will grow at GDP plus 1 percentage point.

The 2014 upturn in spending growth to 6.1 percent spurred by coverage expansion will continue in 2015 also at a rate near 6 percent, the study said. In the absence of the health law, national spending in 2014 would grow 4.5 percent rather than 6.1 percent, it added.

In 2016 to 2022, the most significant one-time effects of coverage expansion are expected to subside.

The study says that by 2022, health spending financed by federal, state, and local governments will account for 49 percent of national health spending.

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