Healthcare spending to reach new heights

Healthcare spending will account for almost a fifth of the nation’s economy by 2020, with government making up almost half of it, Medicare’s actuaries project in a new report published by the journal Health Affairs.

The actuaries project that growth in healthcare spending will average 5.8 percent through 2020, with an 8.3 percent spike in 2014 when the coverage provisions of the healthcare reform law kick in. Between 2015 and 2020, the report estimates, growth in national healthcare spending should average 6.2 percent per year; as a result, healthcare’s share of the gross domestic product will rise to 19.8 percent, up from 17.6 percent in 2009.

{mosads}The report also offers new details about how healthcare spending will be allocated under the law.

Spending on prescription drugs and physicians and clinical services will grow much faster than without the law (10.7 percent in 2014 for drugs and 8.9 percent for clinical services), while the law will have relatively little effect on hospital spending despite the millions of newly insured people. That’s because “many of the newly insured will be younger and healthier,” the actuaries wrote, “[and] are expected to use physician services and prescription drugs to a greater extent than hospital or other more intensive services.”

The law also will rearrange who pays for care.

All governments combined — federal, state and local — should account for 49 percent healthcare spending, with the federal share of the total growing from 27 percent in 2009 to 31 percent in 2020. Employers’ contribution will decline from 20 percent in 2014 to 18 percent in 2020, while the share for households — through premiums and out-of-pocket spending — will remain at 26 percent.

The report cautions that the projections are highly uncertain and can vary greatly depending on economic conditions and political decisions. For example, they assume that controversial provisions of the health law — such as the tax on high-cost insurance plans — will stay in place, bringing down spending by Medicare, Medicaid and private payers lower than may be realistic.

“These projections remain subject to substantial uncertainty given the variable nature of future economic trends and a lack of historical experience for many Affordable Care Act health system reforms,” the report states. “Moreover, ‘supply-side’ impacts of the Affordable Care Act, such as changes in provider behavior in reaction to an influx of newly insured patients, remain highly uncertain and are not estimated at this time.”

The White House chose to focus on the parts of the report that indicate a slowdown in healthcare spending. The growth rate of health expenditures reached a new low of 3.9 percent in 2010, deputy chief of staff Nancy-Ann DeParle pointed out in a White House blog post. And the average annual growth rate between 2010 and 2020 is projected to be only 0.1 percentage points higher (5.8 percent) due to the law, while 30 million people will gain coverage.

“The bottom line from the report is clear: More Americans will get coverage and save money and health expenditure growth will remain virtually the same,” DeParle wrote.

Meanwhile, Ron Pollack of the pro-reform Families USA applauded the law’s “extraordinary effectiveness.”

“The new report by the actuary provides clear and convincing proof of the extraordinary effectiveness projected for the Affordable Care Act,” he said. “Between 2010 and 2020, an historic health coverage expansion will occur for tens of millions of uninsured people with hardly any change in overall healthcare costs.”