Rate of Health Spending Falls

November 3, 2014

CMS’ Office of the Actuary reports in Health Affairs on the increases in health spending. For the period 1990-2008, health spending grew at 7.2% annually or 2% higher than GDP growth. For the five-year period 2008-2013, the rate of health spending fell by more than 50% and grew at the same rate as the overall economy (GDP). The slow down was due to the recession and the slow but steady rate of recovery combined with the ACA reforms in Medicare spending. For the next ten years, the rate of growth in health spending is projected to be 5.7% or 1.1% greater than the rate of economic growth (GDP). The reasons for the increase are: 1) a faster rate of economic growth and 2) increasing baby boomer retirements into the Medicare program.

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The rate of Medicare spending growth will be highest between 2019 and 2023 due to boomer retirements and the aging of Medicare eligibles; the ACA reforms will moderate the growth in Medicare. The rate of increase in Medicaid spending will spike in 2014 as the ACA’s Medicaid expansions financed by the federal government take effect, then the increases fall to normal levels. The rate of private insurance spending will grow as more people are covered through the Exchanges, then slow beginning in 2019. The growth in private insurance is primarily due to more people covered through the Exchanges, mitigated by the ACA’s caps on the tax expenditure growth of high cost plans beginning in 2018. The rate of individual out of pocket spending will fall significantly as more of the uninsured move into the Exchanges and Medicaid, then increase to keep pace with the rise in GDP beginning in 2019.