Health care’s historic spending slowdown

The historic slowdown in health-care spending has been one of the biggest economic stories in recent years — but it looks like that is soon coming to an end.

As the economy recovers, Obamacare expands coverage and baby boomers join Medicare in droves, the federal Centers for Medicare and Medicaid Services’ actuary now projects that health spending will grow on average 5.7 percent each year through 2023, which is 1.1 percentage points greater than the expected rise in GDP over the same period. Health care’s share of GDP over that time will rise from 17.2 percent now to 19.3 percent in 2023, or about $5.2 trillion, as the following chart shows.

Pinpointing the drivers behind the recent slowdown in spending growth has been difficult, but the stakes are enormous. The future of health spending holds major implications for the federal budget and what consumers ultimately will have to pay for their care.

The outlook for this past year is still pretty good. Health spending is projected to have grown just 3.6 percent in 2013, which would mark the fifth straight year that annual growth remained under 4 percent, based on new 2013 projections from CMS’s Office of the Actuary, which offers a detailed outlook each year. The slow economy, sequester cuts to Medicare and a greater uptake of high-deductible health plans likely contributed to the slow growth in 2013, the actuary said Wednesday.

If the CMS actuary’s 2013 estimates are on track, overall health-care spending will stay at 17.2 percent of the national economy for the second straight year. That won’t last, though. The CMS actuary is expecting health spending to grow 5.6 percent in 2014, partly because of Obamacare’s coverage expansion to previously uninsured individuals, as well as the law’s more generous coverage requirements. The actuary is expecting the growth in health spending in 2015 to slow down to 4.9 percent, mostly due to payment reductions in Medicare Advantage and Medicaid. Health spending will then pick up again, growing a projected 6.1 percent per year between 2016-2023, the actuary said.

Still, that’s lower than some of the major increases seen in the 1990s and 2000s. And the outlook for health spending, published in Health Affairs on Wednesday, is actually a bit better than last year’s prediction that it would reach 19.9 percent of GDP by 2022.

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