Although healthcare expenditures now are on a faster growth trajectory than they were over the past five years—when spending never exceeded 4% a year—CMS officials don't think increases will reach the unsustainable rates seen before the Great Recession. That's because high-deductible health plans will constrain health spending, said Gigi Cuckler, an economist with the CMS' Office of the Actuary.
Consumers are less likely to use healthcare services if they have to pay more out of pocket, which drives down spending. But higher deductibles and increased cost-sharing have raised questions about whether people are skipping necessary care and if those mechanisms disproportionately hurt the pocketbooks of less-affluent Americans.
Increased price transparency and narrow provider networks also are expected to keep healthcare prices in check. “We're expecting that medical price inflation will gradually accelerate from historical lows,” said Sean Keehan, a CMS economist. “But they're not going to reach levels where they were in the pre-recession time.”
Economists, including those at the CMS, have been predicting an end to the slowdown in healthcare spending for over a year. More than 8 million Americans gained health insurance in 2014, the first year of the ACA coverage expansion. Many states expanded Medicaid to adults with incomes up to 138% of the federal poverty level, and millions more bought health plans through the ACA's insurance exchanges.
Roughly 23 million Americans now have health coverage through the ACA's Medicaid and private insurance expansions, according to the latest government figures. People are more likely to get medical care if they have health insurance. Economic indicators show that that has resulted in higher hospital and ambulatory spending.
Prescription drugs also drove increased overall spending in 2014, according to the CMS' preliminary report. Projected spending on drugs jumped 12.6% last year, the highest rate since 2002.
The CMS alluded to the expensive hepatitis C drugs Sovaldi and Harvoni, manufactured by Gilead Sciences. Policymakers and patient groups have criticized the high prices of those drugs, but drug companies say their effectiveness makes the cost of treatment worthwhile. The prices of generic drugs also have increased at “alarming rates,” according to Sen. Bernie Sanders (I-Vt.) and Rep. Elijah Cummings (D-Md.), who are calling for caps on generic price increases.
The CMS officials predicted that prescription drug spending would be more of a short-term issue. The market for many drugs is expected to level out as more people are cured of hepatitis C and as insurers negotiate more aggressively with drugmakers on price discounts. “We are monitoring the different new drugs to see what impact they may have on spending growth,” Keehan said.
Keehan also downplayed the effect of drugs on national health expenditures. Pharmaceuticals represent about 10% of healthcare spending, much lower than spending on hospitals and physicians. But other economists have said such large swings in drug spending still could drive up spending growth.
What is less clear is how hospitals, doctors, insurers, employers, drug companies and other healthcare players will seek to hold down costs. Healthcare employers have been on a hiring spree this year, which adds more high salaries into the labor force. That inevitably keeps healthcare as a sizable slice of the nation's gross domestic product.
Overall U.S. economic growth is a major variable. “By far the biggest impact on healthcare spending is how much you have to spend,” said Tom Getzen, a health economist at Temple University. “It really critically depends on how the economy grows.”
Payment and delivery reforms such as accountable care organizations so far have not yielded large savings. Results from Medicare ACOs show millions of dollars have been saved, but it's too early to think those programs have had anything more than a modest impact, Cuckler said.
Total Medicare spending is expected to increase more between 2018 and 2024, according to the projections. Baby boomers started becoming eligible for Medicare in droves in 2011. By 2024, total Medicare expenses could go up by 7.9% since older Medicare patients require more intensive and expensive treatment.
The projected 5.8% rate of health spending growth between 2014 and 2024 would surpass the 4.7% rate of growth in the country's gross domestic product. That would force the ACA's controversial Independent Payment Advisory Board to make cuts to provider and insurance reimbursements after 2017.
Congressional Republicans and some Democrats have wanted to repeal IPAB. The board was erroneously labeled a “death panel” during the healthcare reform debate, but IPAB cannot make any recommendations that would ration healthcare, raise taxes, or increase premiums or cost-sharing for Medicare beneficiaries.