CMS: Healthcare spending growth is set to outpace growth in GDP

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Healthcare spending is expected to make up about 20% of the U.S. economy by 2025.

In the next decade, healthcare spending growth in the U.S. could outstrip growth of the nation’s gross domestic product, according to a new analysis.

The Office of the Actuary at the Centers for Medicare & Medicaid Services on Wednesday released its annual report in Health Affairs examining Americans’ healthcare spending. It projected average healthcare spending growth of 5.6% per year between 2016 and 2025.

By comparison, GDP growth is projected at 4.4% annually. By 2025, healthcare will account for nearly 20% of the U.S. economy, up from 17.8% in 2015, according to the report.

The growth in health spending is projected to start slow, with estimated growth rates of 4.8% in 2016 and 5.4% in 2017. That's noticeably slower compared with 2014 and 2015, as those two years marked the peak of Medicaid expansion programs and more people becoming insured under the Affordable Care Act. But after the slowdown, the rate is expected to pick up.

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“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,” Sean Keehan, a senior economist with the actuary’s National Health Statistics Group and the report’s lead author, said in an announcement.

The report is based on current healthcare law and did not estimate changes that could come as a result of any new proposed health reforms, including a repeal of the ACA. Alan Weil, J.D., the editor in chief of Health Affairs, said at a press briefing Wednesday that the data in the actuary’s report is valuable regardless of future health policy changes for three reasons:

  1. It’s still important to have an idea of where spending is headed
  2. This offers a baseline for comparison should current law be changed significantly
  3. Estimates like these can pinpoint future areas for economic and political pressure on health reform.

Though the report suggested spending growth will slow in 2016 and 2017, the actuary still projected that the uninsured rate will decrease by 1.2 million in 2016. Overall, the report projected that the insured sector of the population will increase slightly from 90.9% to 91.5% by 2025, with that growth rate continuing to slow now that the initial rush for individual market plans, tied to the start of the ACA exchanges, is over.

The actuary also noted that it is likely the share of healthcare spending sponsored by federal, state and local agencies will increase from 46% to 47% by 2025. This increase is tied to the aging baby boomer generation as its members become eligible for Medicare benefits and become sicker as they get older.