That welcome news was contained in the latest healthcare spending projections from the actuaries at the CMS. After four straight years where healthcare spending grew by less than 4% in nominal terms (that's about 2% after inflation is taken into account), spending on healthcare next year is expected to surge 6.1%, which means a doubling of the real rate of growth in the sector that accounts for 17.9% of the overall economy (only government is larger).
The reasons for next year's uptick are plain enough. With 11 million Americans slated to gain health insurance coverage either through the new health insurance exchanges or Medicaid, “the use of goods and services among the newly covered is expected to contribute significantly to spending increases,” the report noted.
And 2015 will be no different. Another 8 million previously uninsured people will gain coverage. Moreover, the pace of the economy's recovery is expected to pick up—in part because of increased healthcare spending.
Does that mean the healthcare cost control measures contained in the Patient Protection and Affordable Care Act are a failure? The jury is still out on that question. And while the actuaries should be counted among the skeptics, even they admit the trend is positive. If one compares their recent long-term projections, the actuaries now see healthcare growing to 19.9% of GDP by 2022, where four years ago—about the time the ACA passed—the actuaries believed spending would reach that level by 2018.
The shifting composition of spending revealed in last week's report was revealing. The people obtaining coverage under the expansion will generally be younger and healthier, so they will be seeing doctors, not going to the hospital. Hospitals are projected to receive only 4.7% more revenue next year, a smaller bump than three out of the past four years. Physician spending, on the other hand, is expected to grow by 7.1%, more than three percentage points higher than 2013.