Last week, two well-respected groups of government economists predicted the end is nigh for the era of restrained growth in healthcare spending. Ignore them. They've been wrong before. They will be proven wrong again.
Every summer, the actuaries at the CMS and the money minders at the Congressional Budget Office—economists all—offer their outlooks for future healthcare spending. Every year since the onset of the Great Recession and through the economy's slow-but-steady recovery, they've projected the current era of slow growth is coming to an end.
For instance, in mid-2013—well into the current era of restrained growth—the CMS foresaw total healthcare spending growing to 17.9% of gross domestic product in the prior year. The actual number in 2012, included in last week's report, was 17.3%.
Their efforts to look ahead were no more accurate. Three years ago, they foresaw healthcare expenditures soaring to 18% of GDP in 2013 and 18.4% in 2015.
Last week's projection, which included historical data, revealed actual healthcare spending grew only at the same rate as the rest of the economy in 2013—that is, it remained at 17.3% of GDP, seven-tenths of 1 percentage point below the projection. And for 2015, still a projection—the final numbers won't come out until next January—the CMS economists predicted total spending will “surge” to 17.8% of GDP, up from 17.5% in 2014, and further surge to 20.1% of GDP in 2025.
In other words, they are now assuming there was a huge boost in spending last year, fed by people newly insured under the Affordable Care Act and higher drug spending. They expect that surge to continue in the years ahead.
CBO economists, who focus mostly on the direct services that government pays for (Medicare, Medicaid, the Children's Health Insurance Program and ACA subsidies), haven't proven any more perspicacious in their long-term budget outlook.
Three years ago, they projected those programs—currently at about 5.5% of GDP—would soar to an unsustainable 8% of GDP by 2038. Last year's report called for crossing that threshold in 2040. This year, they moved the goal posts and projected government spending on healthcare insurance programs to reach 8.9% in 2046.
Put another way, each year the CBO has to account for total spending coming in below what they had expected and move their doomsday scenarios further into the future.
After a half decade of these revisions, you'd think the CMS and CBO economists would adjust some of their assumptions to better reflect the operational changes that are sweeping the industry. The movement toward value-based medicine has grafted the ethos of cost control onto the DNA of most major healthcare organizations.
On the payer side, it is inevitable that the government is going to pick up a larger share of the overall healthcare tab. The population is aging; Medicaid is expanding to cover more of the near-poor; and subsidies will inevitably grow for the share of population that will have to rely on the exchanges to purchase individual plans because their employers don't or no longer provide health insurance—assuming this year's election doesn't undo the addition of Obamacare to the nation's safety net.
That's going to maintain pressure on the government to hold down healthcare spending, since it will require higher taxes for government to meet its greater obligations. We'll also see a continuation of the trend toward more of overall private insurance costs being shifted from employers onto individuals as more people are shifted into high-deductible plans.
Those two trends working in tandem will continue to exert pressure on insurers—both government and in the private sector—and providers to hold down overall spending on healthcare.
Whether either trend will lead to better health outcomes or a more humane healthcare system is worth debating. What's beyond debate is that both trends are having a major impact on long-term cost growth—something government economists ought to start taking into account when making their projections.