Healthcare spending growth grew at a slightly faster rate in 2017, reaching nearly $3.5 trillion, and Medicare spending is expected to climb substantially over the next decade as more baby boomers qualify for coverage, according to new estimates from the Centers for Medicare & Medicaid Services.
CMS' Office of the Actuary estimates that healthcare spending increased by 4.6% last year, a slight faster growth rate than the 4.3% recorded in 2016, according to its annual health expenditures projections, which were published in Health Affairs. Between 2017 and 2026, the actuary projects spending to increase by 5.5% on average each year, with total spending reaching $5.7 trillion by 2026.
CMS suggested in its report last year that growth in healthcare spending would overtake growth in the U.S. gross domestic product, and that estimate holds true for 2017 to 2026, as well, according to the report. It estimates that growth in healthcare spending will outpace GDP growth by one percentage point over the next decade, and expects healthcare spending to account for 19.7% of U.S. GDP by 2026.
One of the major drivers of healthcare spending trends over the next decade is the aging population, Gigi Cuckler, an economist with the Office of the Actuary's National Health Statistics Group and one of the report's lead authors, said at a press briefing Wednesday.
"It's very clear that the aging population has a significant impact on enrollment in Medicare and a shift out of private insurance," Cuckler said.
The actuary's report also projects that healthcare costs will grow at a slightly faster rate, further driving growth in healthcare spending. CMS has accounted for some changes from the Republicans' tax reform legislation but did not calculate the impact of the bipartisan spending deal passed last week.
As Medicare enrollment increases, Medicare spending will increase in tandem, according to the report. The actuary estimates that Medicare spending will grow by an average of 7.4% each year through 2026.
Slower spending growth is expected in private insurance as more baby boomers qualify for Medicare and people with private insurance use less care. Spending in private insurance is expected to grow by 4.7% per year between 2017 and 2026, a growth rate that is slowing in part as more people enroll in high-deductible health plans, according to the report. People enrolled in high-deductible plans through their employers are more likely to skip on healthcare, including preventive screenings that are required to be free under the Affordable Care Act.
CMS also projects that the repeal of the individual mandate will play a role in lowering spending for private insurance. The report estimates that the number of people with health insurance will dip by 2026, decreasing from 91.1% in 2016 to 89.3%. The report projects that some people will choose to forgo insurance without the penalty in place.
The actuary assumes "that some younger and healthier people will choose to be uninsured—particularly those with comparatively higher incomes who might not qualify for premium subsidies in the health insurance marketplaces," according to the report.
An area where CMS expects to see some of the highest spending growth is in prescription drug spending, which it projects will grow by an average of 6.3% per year over the next decade. One of the major drivers of this trend is the growing cost of drugs, which the Office of the Actuary expects to compound in the latter years of the projection window because of pricey specialty drugs.
Sean Keehan, another economist in the Office of the Actuary and one of the report's authors, said at the briefing that CMS expects to see generic drugs serving as less of a mitigating factor on the rising cost of brand name and specialty medications.
"The dollar value of drugs going generic is projected to be less of a factor in 2018 than 2017," he said. "Price increases in brand name drugs won't be mitigated by some drugs going generic."
CMS also expects rebates to have less of an impact on lowering the cost of drugs in the coming years compared to years prior, Keehan said.