Policy/Biz

Obamacare Will Reduce Medicare Costs Now Growing At Lower Rate Than Anticipated: CMS

healthcare spending
A report from CMS estimates health spending growth at 3.6 percent for 2013 while also projecting a decline in the number of uninsured by nearly half from 45 million in 2012 to 23 million by 2023 due to Obamacare. Photo courtesy of Shutterstock.

An annual report from the Centers for Medicare & Medicaid Services (CMS) Office of the Actuary estimates Medicare costs will grow at a slower rate than previous economic projections, due to general economic growth, expansion of insurance coverage under Obamacare, and a lower average age of Medicare beneficiaries. Overall, the National Health Expenditure projections report anticipates health spending to grow at 3.6 percent in 2013, a result of a slow-moving economic recovery, continued increases in private health insurance costs for consumers, and the effects of sequestration. Additionally, the report estimates the number of uninsured to decline by nearly half as a result of coverage expansion under the Affordable Care Act: from 45 million in 2012 to 23 million by 2023.

"Analysis of historical trends tells us that health care spending tracks with economic growth, so as the economy is anticipated to improve over the next decade, health spending growth is projected to grow faster,” said Andrea Sisko, the lead author of the study. The annual report projects health spending growth at 5.6 percent in 2014 and 6.0 percent per year from 2015 through 2023. This estimated average rate of increase through 2023, then, is slower than the 7.2 percent average growth experienced during 1990–2008.

“This [estimated health spending growth], in addition to the baby boomers aging and increased insurance coverage mandated by ACA, is expected to result in the health share of GDP rising to nearly one-fifth of the nation’s economy by 2023,” Sisko said. Current estimates establish the health care industry as comprising about one-sixth of the total U.S. economy.

Another View of Future Health Spending

By comparison, a June 2014 study from PricewaterhouseCooper’s (PwC) Health Research Institute estimated a 6.8 percent rise in health care spending during 2015, which represents a reversal of five years of reduced costs in this sector, which is in alignment with the rest of the economy and so affected by the recession. The professional services company based this growth projection on an improved economy and increasingly confident consumers. Another factor plays into PwC’s estimates: the higher price tags on specialty drugs, such as those to treat infections like hepatitis C, which affects about 3.2 million Americans.

This projected increase in 2015 is higher than the 6.5 percent growth PwC expects for 2014. “Now that overall economy has improved and come back significantly, we see for 2015 that health spending is also loosening up,” Ceci Connolly, a co-author of the PwC report, told US News & World Report in June.

Among the trends identified by the PwC report is enrollment in high deductible plans, which has tripled since 2009. Surprisingly, over one-quarter of employers have a high-deductible health plan as their highest enrolled medical plan in 2014, the highest percentage ever. With more individual consumers responsible for health care spending decisions, value and price of services are rising in priority. Consumers have begun to price-shop for health services while placing new demands on the delivery of care, according to PwC, and in response providers are standardizing processes as a way to offer better value.

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