National Health Expenditure Projections, 2012–22: Slow Growth Until Coverage Expands And Economy Improves

By Gigi A. Cuckler and colleagues in the Office of the Actuary at the Centers for Medicare and Medicaid Services (CMS)
Health Affairs, October 2013

Health spending growth through 2013 is expected to remain slow because of the sluggish economic recovery, continued increases in cost-sharing requirements for the privately insured, and slow growth for public programs. These factors lead to projected growth rates of near 4 percent through 2013. However, improving economic conditions, combined with the coverage expansions in the Affordable Care Act and the aging of the population, drive faster projected growth in health spending in 2014 and beyond. Expected growth for 2014 is 6.1 percent, with an average projected growth of 6.2 percent per year thereafter. Over the 2012–22 period, national health spending is projected to grow at an average annual rate of 5.8 percent.

National Health Expenditures (NHE):

2013  $2.915 trillion
2022  $5.009 trillion

NHE per capita:

2013  $9,216
2022  $14,664

NHE as percent of Gross Domestic Product (GDP):

2013  18.0%
2022  19.9%

2014 Growth Rates By Selected Sector, Before And After The Impact Of The Affordable Care Act

SOURCE: Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group.

http://content.healthaffairs.org/content/early/2013/09/13/hlthaff.2013.0…

Link to bar graph:
http://content.healthaffairs.org/content/early/2013/09/13/hlthaff.2013.0…

Celebrating the slowing of the rate of increase in health care spending is premature, judging by the conclusions of the experts at the Office of the Actuary at CMS. Over the next decade, health care costs will continue to increase at a rate of about 6 percent annually, reaching nearly 20 percent of our GDP by 2022.

If the Affordable Care Act (ACA or Obamacare) will not adequately control health care inflation, then what financial impact is it having? Look at the bar graph above. The differences represent only the impact of ACA in 2014 and not the other economic factors that the actuaries took into consideration in this report.

Instead of slowing the growth in our national health expenditures, ACA will increase spending. This is expected because of the numbers of individuals who will gain coverage through the expansion of Medicaid and the establishment of the state Marketplaces (exchanges). Had we enacted single payer reform instead, the savings from the efficiencies would have offset the costs of even greater expanded coverage, including everyone.

Most of the increases in coverage will be amongst healthier children and younger adults. For that reason hospital care is not expected to increase much due to ACA, but physician and clinical services and prescription drugs will increase significantly now that these individuals will have more affordable access to health care.

The net cost of health insurance (premiums earned minus benefits paid) will skyrocket, since, after all, ACA was a gift to the private insurance industry. Obviously much of that represents an increase in the administrative waste that characterizes our dysfunctional financing system.

“Net cost of health insurance is calculated as the difference between calendar year incurred premiums earned and benefits paid for private health insurance. This includes administrative costs and, in some cases, additions to reserves; rate credits and dividends; premium taxes; and plan profits or losses. Also included in this category is the difference between premiums earned and benefits paid for the private health insurance companies that insure the enrollees of the following public programs: Medicare, Medicaid, Children’s Health Insurance Program, and workers’ compensation (health portion only).”

But look at the growth in government administration directly due to ACA. Think of the administrative costs of Medicare – under 2 percent of benefits paid. Now look at the rate of increase in administrative costs that are attributable to a complex, fragmented, multi-payer system of financing health care – flaws greatly compounded by ACA.

Government administration “includes all administrative costs (federal, state, and local employees’ salaries; contracted employees including fiscal intermediaries; rent and building costs; computer systems and programs; other materials and supplies; and other miscellaneous expenses) associated with insuring individuals enrolled in the following public health insurance programs: Medicare, Medicaid, Children’s Health Insurance Program, Department of Defense, Department of Veterans Affairs, Indian Health Service, workers’ compensation, maternal and child health, vocational rehabilitation, Substance Abuse and Mental Health Services Administration, and other federal programs.”

Although the dollar amount that will be spent by the government on health care administration (projected $70.4 billion in 2022) is a bargain compared to the cost of administration in the private sector (net cost of private insurance projected to be $313.2 billion in 2022), these increases nevertheless are representative of the profound administrative waste of the ACA model of reform.

Haven’t you readers had enough of this? Why don’t you go out and do something about it?