Industry News

On February 20, 2019, the Centers for Medicare & Medicaid Services’ (CMS) Office of the Actuary released the projections for national health expenditures for 2018 through 2027. The National Health Expenditure Accounts (NHEA) measures annual U.S. expenditures for health care goods and services, public health activities, government administration, net cost of health insurance, and investments related to health care.

According to CMS, national health care spending in 2018 grew by 4.4%, reflecting slower-than-expected Medicaid enrollment and spending increases. Under current law, national health spending is projected to grow at an average rate of 5.5% per year from 2018 through 2027, reaching $6.0 trillion by 2027.  As a share of the gross domestic product (GDP), health care spending is projected to increase from 17.9% in 2017 to 19.4% in 2027.  The major drivers of this growth are economic and demographic factors fundamental to the health sector.

By 2027, federal, state and local governments are projected to finance 47% of total national health spending, up from 45% in 2017.  The increase of 2% over the projection period is mainly due to the impact of Medicare enrollment.

Among the major payers for health care, projected growth in average annual spending for Medicare (7.4%) and Medicaid (5.5%) are significant contributors to the rate of national health expenditure growth.  For Medicare, the most rapid annual growth at 7.4% is mainly driven by the comparatively higher projected enrollment growth as baby-boomers continue to age into the program and growth in the use and intensity of covered services.

From 2018 through 2027, private health insurance spending is projected to average 4.8%, which is the slowest of the major payers.  This is the result of low enrollment growth related to baby-boomers transitioning from private health coverage into Medicare.  During this time period, out-of-pocket expenditures are projected to increase at an average rate of 4.8% and represent 9.8% of total spending by 2027, down from 10.5% in 2017.

Prescription drug spending is projected to increase by an average of 5.6% per year over the next decade, driven mostly by increased utilization growth as well as the expected increase of new and expensive innovative drugs into the prescription drug market. Hospital spending growth is projected to average 5.6% mainly due to faster expected growth in both Medicare and Medicaid, but slower projected growth in private health insurance as enrollment declines slightly as a result of the repeal of the individual mandate.

From 2018 through 2027, health care goods and services costs are projected to grow faster at 2.5% compared to 1.1% for 2014-17.  In addition, physician and clinical services spending is projected to increase an average of 5.4% due to the expected rising wage growth related to increased demand from the aging population.

The insured share of the population with health insurance is projected to remain stable at about 90% throughout 2018-27.

The summary report is available here and further information is available here.