Health Reform WK-EDGE Healthcare spending is growing more quickly than the rest of the economy
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Thursday, February 22, 2018

Healthcare spending is growing more quickly than the rest of the economy

By Rebecca Mayo, J.D.

According to the CMS Office of the Actuary, national health spending is projected to grow at an average rate of 5.5 percent per year from 2017 to 2026 and to reach $5.7 trillion by 2026. This growth is projected to be faster than the projected growth in Gross Domestic Product (GDP) by 1.0 percentage point from 2017 to 2026. This means that the health share of GDP will rise from 17.9 percent in 2017 to 19.7 percent by 2026 (National Health Expenditure Projections 2017 – 2026, February 14, 2018).

Private insurance and personal spending. While the recent enactment of tax legislation that eliminated the individual mandate is expected to lead to a reduction in the insured rates, economic factors such as projected GDP growth and employment trends are major factors in the slight projected decline in the insured population from 91.1 percent in 2016 to 89.3 percent in 2026. Growth in personal health care spending is projected to average 5.5 percent from 2017 to 2026. The largest factor (2.5 percentage points) being personal health care price growth. The lagged impact of slowing growth in income in 2016 and 2017 along with the increasing prevalence of high-deductible health plans will lead to a projected average growth of 4.7 percent in private health insurance spending from 2017 to 2026. This slower growth in spending can also be attributed to the continued shift of the baby-boom generation from private insurance to Medicare.

Government spending. Medicare spending is expected to average 7.4 percent due to enrollment growth and faster growth in utilization from recent near-historically low rates. This growth can be attributed to growth in both enrollment and per enrollee spending. Medicaid is projected to average 5.8 percent annual growth from 2017 to 2026 due to faster per enrollee spending associated with increasing shares of comparatively expensive aged and disabled enrollees in the program. This is slower than the average of 8.3 percent observed from 2014 to 2016 when the major impacts from the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) expansion took place. By 2026, federal, state, and local governments are projected to sponsor 47 percent of total national health expenditures, which is up from 45 percent in 2016.

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