The gloomy Guses at the CMS think nothing can stop the upward march of healthcare spending. Why do they presume every strategy for controlling costs will fail?
Their pessimistic view was contained in the latest 10-year projection by the economists in the Office of the Actuary, who predicted healthcare spending will reach 19.4% of gross domestic product in 2027, up from 17.9% in 2017. Growth in actual dollars will average 5.5% over the next decade and exceed nominal economic growth by nearly a full percentage point.
The report is the melody for those beating the drum for lower entitlement spending. Throw the bums off Medicaid. Give seniors vouchers and let them fend for themselves.
We've heard this song before. A decade ago the CMS predicted healthcare spending would reach 19.4% of GDP by 2017. Just four years ago, they predicted 18.1% by 2018. It's now estimated at 17.8%.
Why are they so consistently wrong? A decade ago, the CMS fretted the gray wave of baby boomers entering retirement would drive spending significantly higher at a faster rate. It did not.
I've written before on why I think the slowdown occurred: delivery system and payment reforms, shifting care to less-costly settings, and changing cultural preferences on end-of-life care.
But let's not belabor Healthcare Past, or even Healthcare Present. What are the actuaries saying now?
“Prices for healthcare goods and services are projected to grow … faster than average price growth experienced over the last decade and account for nearly half” of projected spending growth, they wrote. Another third of growth will come from more intensive use of healthcare services by individual patients.
How strange. The one thing we can't do anything about—demographics—is no longer a significant driver of higher costs. As the young-old boomers of today become the middle-old and old-old boomers of tomorrow, Medicare spending will grow faster than Medicaid or private insurance. Yet aging boomers only get one-sixth of the blame for the bulked-up Healthcare Future.
The things the actuaries say matter more—prices and use—are the very things we can do something about. Alas, the actuaries are required to use current law in making their projections.
In other words, their outlook doesn't take into account the likely policy response to growing public outrage over high drug, hospital and testing prices. They also dismiss the potential savings from improving care coordination, eliminating unnecessary tests and procedures, moving care to less-costly settings, and beefing up social support for the 5% of patients who account for 50% of all spending.
They also make some questionable presumptions about private sector activity. They dismiss insurer and physician efforts to hold down costs. The factors that will be “less influential in restraining prices” over the next decade include consumer cost-sharing, narrow networks, and better use of physician assistants and nurses in physician offices.
They even predict prescription drug spending, a major focus for politicians and the public, will rise more than 6% a year in the 2020s, which is faster than most years in the past decade.
It will accelerate due to “robust efforts by employers and insurers to reduce any barriers regarding the use of maintenance drugs needed to keep their enrollees with chronic conditions healthy,” they write.
Yet they predict hospital use, which has been dropping like a rock the past decade, will snap back to pre-Affordable Care Act era rates. Those must be pretty lousy drugs if the people taking them will be showing up at hospitals in greater numbers than before.
Over the past decade, CMS actuaries have consistently overestimated future healthcare spending. They failed to foresee the great moderation that in fact took place.
Their latest projections should be viewed in that light. As the great sage Yogi Berra once said, “It's tough to make predictions, especially about the future.”