CMS Actuary Projects Future Health Care Growth

Today’s Managing Health Care Costs Indicator is 19.8%

Click to enlarge.  Source

Health Affairs published the 2011 CMS Actuary projections of health care cost growth over the next ten years, and there are some important observations.   As the report points out, these are projections – and the model has to make a series of assumptions, many of which are dependent upon the overall economy, changes in legislation and regulation, and provider reactions to payment reform.

Some of the conclusions:

·        The total spending on health care will almost double between 2008 to 2020, from $2.4 trillion to $4.6 trillion. 
·        Health care overall will increase at a rate about 1% faster than GDP growth.
·        Health care now represents 17.6% of the GDP, and will grow to 19.8% of the GDP by 2020.
·        The portion of health care expenditures that are government payments will approach 50% during this time period, and the federal portion of direct health care expenditures will increase from 27% to 31% 
·        Medicare increases due to aging population are substantially dampened by payment cuts of the Affordable Care Act
·        Eliminating the (unimaginable) SGR 29.4% physician payment cut scheduled for January 1, 2012  would mean that the Medicare increase would jump from 1.7% (substantially below GDP growth) to 6.6% next year.  The SGR elimination is not factored into the chart above – but it has the same impact on projections with or without the Affordable Care Act.
·        The impact of the Affordable Care Act is negligible until 2014, when there is a one-year bump in medical inflation due to the large number of Americans who will receive insurance
·        There are many “winners” in the 2014 payment bump:
·        Prescription drug spending would increase by 10.7%, more than double the increase without the ACA
·        Physicians (8.9% bump, about 1/3 increase)
·        Hospitals (7.2%, just a 1% increase, since many of the newly-insured are healthier than those who were habitually uninsured.

The total cost of increase in coverage is relatively modest, although I suspect both supporters and opponents of the Affordable Care Act will cite this study to support their point of view.   The pressure to constrain future growth in health care costs will continue unabated.