CMS: U.S. to pay 49% of health spending by 2020

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Economists predict that government spending will account for 49 percent of all national health expenditures by 2020, according to a report from the Centers for Medicare and Medicaid Services (CMS) released July 28.

Sean P. Keehan, an economist in CMS' Office of the Actuary, predicts a spike in healthcare spending growth of 8.3 percent in 2014 as a result of the Patient Protection and Affordable Care Act (PPACA). The same year, the government is expected to pay for 47 percent of all national health expenditures. By 2020, investigators predict the government will pay for nearly half ($2.3 trillion) of all expenditures ($4.6 trillion).

“During this period, projected increases in the government’s share of healthcare financing are largely associated with the robust projected Medicare enrollment growth, the Medicaid expansion and federal costs associated with the exchange premium and cost-sharing subsidies,” the researchers wrote.

Last year marked a historically low estimated national health spending growth rate of 3.9 percent, according to the findings. As a result of major portions of the PPACA, spending growth is expected to climb to 8.3 percent in 2014, and then taper to 6.2 percent growth from 2015 to 2020.

Nearly 30 million Americans will gain health insurance coverage as a result of the PPACA by 2020, investigators predict, and expanded coverage from Medicaid and the private insurance industry is expected to increase demand for healthcare, particularly for prescription drugs and physician and clinical services.

“Health spending is projected to grow at an average rate of 5.8 percent from 2010 to 2020 [or 4.9 percent per capita]. At the same time, GDP [gross domestic product] is projected to grow by 4.7 percent per year. That would cause an increase in the health share from GDP from 17.6 percent in 2010 to 19.8 percent by 2020,” said Keehan during a press conference.

National health spending is estimated to have reached $2.6 trillion in 2010. The same year, the number of people enrolled in private insurance plans dropped by about five million, according to the report. Private health insurance spending growth was 2.6 percent in 2010, and out-of-pocket spending climbed 1.8 percent. Through 2013, out-of-pocket spending is expected to average 3.2 percent growth.

“The accelerated growth in out-of-pocket spending is driven by increases in disposable personal incomes during economic recovery and expansion, which in turn leads to greater use of more medical services,” the researchers wrote. “The projection is also based on an expectation that many employers will continue the recent trend of offering health insurance plans that require higher cost sharing, also leading to higher out-of-pocket spending.”

In other findings, Keehan et al predicted that as a result of the PPACA, some large employers with low-wage workers will stop offering health insurance and instead pay the penalty mandated by the PPACA. Their employees will switch to Medicaid or health insurance exchanges, whichever they are eligible for.

“We expected that in some circumstances [with] a large employer with relatively low paid workforces, it would be in the best interest of both the employer and employees for the employer to end their health plan and transfer their employees to health insurance exchanges or Medicare,” said Richard Foster, CMS' chief actuary.

They estimated a decline of roughly 13 million people from employer sponsored health insurance. However, because of mandated coverage, other employers will offer coverage for the first time, and some employers will expand coverage, enrolling an estimated 11 million people.

“On balance, there’s not a big change in the total number of workers with employer sponsored coverage,” Foster said.

Had healthcare reform not been enacted, projected spending growth rates would have been similar, according to the report. “The PPACA is not really changing the growth rate, except for a spike around 2014,” said Foster.

The report will be available free for two weeks.