What Will Drive the Expected Rise in US Healthcare Spending?

Yesterday’s government report that healthcare spending will start rising faster after a decade of historically slow growth raises questions: Will rising numbers of insured people drive the spending? Or are healthcare costs going up on their own?

The answer is likely some of each, based on a look at trends within yesterday’s report and a just-released study of spending by commercial health plans, published in The American Journal of Managed Care.

Actuaries from the Centers for Medicare and Medicaid, in an article published in Health Affairs, forecast total health spending will rise to $5.2 trillion by 2023, growing to about a fifth of the economy, up from 17.2 percent in 2012. Spending growth is expected to jump from 3.6 percent in 2013 to 5.6 percent for 2014, with an average rate of 5.7 percent growth for the rest of the decade.

The report pinned the rise on multiple factors: the improving economy, which will unleash spending that had been held in check; more Baby Boomers moving into Medicare, and the expansion of coverage under the Affordable Care Act (ACA). The White House announced in April that some 8 million Americans had signed up for coverage through federal and state exchanges, and sign-ups continue for those eligible for mid-year enrollment.

While increased use of Medicare by Baby Boomers and Medicaid expansion in many states will account for some of the increase, last week’s study by researchers at The Dartmouth Institute reported that recent spending increases by commercial insurers are being driven by higher prices for medical services, not by increased utilization.

“There is increasing concern that consolidation in the healthcare marketplace will lead to increased prices faced by payers and, ultimately, consumers,” said Carrie Colla, PhD, assistant professor at The Dartmouth Institute and the lead author.

For example, the Community Oncology Association has been warning for several years that consolidation is driving lower-cost community oncologists into hospital settings, where costs are higher.

The CMS actuaries pointed out, however, that the ACA was probably not the most important driver of healthcare spending. Historically, the overall economy has been a more important factor. The report noted that in the late 1990s, growth in health spending far outpaced gross domestic product. Between 1990 and 2008, the annual rate of increase in health spending was 7.2 percent, less than is forecast through 2023.

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