Health care spending last year hit $3.4 trillion, an amount that represents a 4.8% increase from 2015, CMS said in a report published last month in the journal Health Affairs.
The aging of the baby boom generation and overall economic inflation were cited as principal drivers of the projected increase.
Under current law, health expenditures in the United States are projected to grow at an average annual rate of 5.6% from 2016 to 2025, according to actuaries from CMS.
Health care spending is projected to account for 19.9% of the U.S. economy by 2025, up from 17.8% in 2015, according to CMS.
The report assumes that the Affordable Care Act remains in place and unchanged. That assumption might well be faulty: President Trump and Republicans on Capitol Hill have vowed to repeal the law, but haven’t yet agreed on the time line or a replacement. Any action by lawmakers would likely influence health spending, and possibly increase the number of uninsured, although that’s something Republicans have vowed not to do.
Irrespective of any changes in the law, cost pressures associated with paying for health care will compel employers, insurers and other payers to pursue strategies to effectively manage the use and cost of health care goods and services, the report said.
The CMS report anticipates that health spending in 2016 declined 1.1 percentage points to 4.8% as a result of slower growth in outlays for Medicaid and prescription drugs. The ACA expanded Medicaid, the government health insurance program for the poor, in more than 30 states and set up private health care exchanges that enabled previously uninsured people to buy health insurance. After high enrollment between 2014 and 2015, Medicaid and private health insurance spending were expected to have slowed in 2016.
The slowdown is expected to be short-lived, however, as more baby boomers go onto Medicare and likely require more care. The use of Medicare services is expected to increase from its recent historic lows, and the Medicaid population mix will trend toward older, sicker and more costly beneficiaries.
Beginning in 2018, demand by aging Americans for health care is expected to drive growth in spending on both Medicare and Medicaid at a faster pace than spending on private insurance. Some boomers can be expected to drop private insurance as they become eligible for Medicare, according to CMS.
The report projects faster growth in medical prices between now and 2025, but estimates that these expenses will be partly offset by slower growth in the use and intensity of medical goods and services.
Prescription drug costs also began to slow last year after surging in 2014 and 2015 as drugs that were approved to treat hepatitis C hit the market.
CMS attributed last year’s slowdown to more prescription drugs losing patent protections and thereby allowing more generics to hit the market. CMS acknowledged that new specialty drugs will continue to put upward pressure on drug prices.
The ACA’s impacts are projected to diminish over the course of the projection period as the economy grows and more people are employed in jobs that provide them with health insurance. CMS projects that the insured share of the population will rise to 91.5% in 2025 from 90.9% in 2015.