Report from CMS projects 5.8% annual spending growth through 2025

The growth in healthcare spending should slow in 2016 compared to the previous two years, while projected growth over the next decade remains unchanged at 5.8 percent annually, according to CMS’s new healthcare expenditures report published in Health Affairs.

National health spending grew by 5.5 percent in 2015 to a total of $3.2 trillion. That’s expected to drop to 4.8 percent growth in 2016 “as the enrollment in Medicaid and Marketplace plans slows and the associated declines in the number of the uninsured decreases.”

Hospital prices were up by by 0.9 percent while price growth in physician services fell by 1.1 percent. Medical price inflation was also down (0.8 percent in 2015 vs. 1.4 percent in 2014).

Overall, the CMS report said the Affordable Care Act and emphasis on testing alternative payment models within Medicare are keeping spending growth below what was seen for the two decades prior to the 2008 recession.

“This progress is occurring while also helping more Americans get coverage, often for the first time," said CMS Acting Administrator Andy Slavitt. “Per capita spending and medical inflation also remain at historically very modest levels, demonstrating the importance of continuing to reform our delivery systems. As we look to the future, we must continue our efforts that keep people healthy, providing access to affordable, quality care, while spending smarter across all categories of care delivery.”

Spending will continue to grow, however. With the projected 5.8 percent annual growth between 2015 and 2025, health spending was estimated to account for 17.5 percent of the country’s gross domestic product in 2015, which should increase to 20.1 percent by 2025. Local, state and federal governments are expected to finance 47 percent of national health spending by that year.

With that extra burden on public programs, the share of health spending paid out-of-pocket by patients is expected to decrease a full percentage point to 9.9 percent by 2025.

The growth in prescription drug spending also appeared to be slowing down, though it remains higher than overall spending growth. Prescription spending grew by 8.1 percent in 2015, down from 12.2 percent in 2014, with 6.3 percent growth expected in 2016 and the 2014 10-year outlook predicting 6.7 percent annual growth through 2025.

The report said while there were more new drugs available in 2015, the important factor is how many patients could receive them.

“In 2015 there were 45 new drug approvals in the United States, up from 41 in 2014 and 27 in 2013,” the report said. “Many of these drugs have small target patient populations. Thus, the impact of new drugs approved in 2015 is likely to be smaller than in the previous two years—when fewer new drugs were approved, but several of them were intended for wide use.”

When breaking the spending down by payer type (private insurance, Medicaid or Medicare), Medicaid spending growth saw the most significant decline. It dropped to 5.3 percent in 2015, causing the 10-year projection to drop to an average of 5.6 percent annual growth through 2025.

For 2016, drops are expected for Medicaid hospital spending growth (6.5 percent, down from 12.4 percent in 2015), Medicaid physician and clinical services spending growth (5.1 percent, down from 11.4 percent in 2015) and Medicaid prescription drug spending growth (4.9 percent, down from 17.7 percent in 2015).

Growth in private insurance is expected to remain low, with 5.1 percent growth in 2015 and 4.9 percent projected for 2016. Medicare, however, is projected to see accelerated growth of 5.2 percent in 2016, up from 4.6 percent in 2015.