Price increases and growing use of healthcare services will drive national health spending (NHE) in the U.S. to 20% of the nation’s economy by 2025, according to projections calculated by a team from the Centers for Medicare and Medicaid Services (CMS). Health spending will reach $3.6 trillion dollars this year.

These were published in a Web-First article in Health Affairs on 15 February 2017

The caveat on these numbers is that the CMS team used economic models based on “current-law framework:” these make no assumptions about legislative changes that may occur in healthcare reform between 2017 and 2025.

While that’s a big assumption given the current three-legged debate about “repeal-replace-or-repair” the Affordable Care Act (ACA), there’s one certainty I can get behind that CMS analysts write in the conclusion of this article: the last paragraph states,

            “Irrespective of any changes in law, it is expected that because of continued cost pressures associated with paying for health care employers, insurers, and other payers will continue to pursue strategies that seek to effectively manage the use and cost of health care goods and services.”

That is, the private sector (read: employers, unions, and other health insurance plan sponsors) will continue to look for cost-effective ways of providing health insurance to employees, which will probably include consumer-directed health plans (high deductible plans coupled with health savings accounts — the latter a concept favored by Secretary of Health and Human Services Dr. Tom Price).

Some of the key data points in the NHE forecast are that:

  • National health expenditures will grow by 5.6% each year to 2025
  • This growth rate will result in total healthcare spending comprising one-fifth of the national economy in 2025
  • That growth rate will exceed general price inflation
  • 91.5% of people in America will be insured by 2025
  • Prescription drug spending will grow at an annual rate of 6.4% over the forecast period of 2016-25.

Health Populi’s Hot Points:  Check out the bar chart which illustrates the factors accounting for growth in personal health care expenditures. These are costs for individual patient care. Growth between 2020 and 2025 is expected to be attributable, first, to medical prices, followed by use and intensity.

“It’s the Prices Stupid,” was titled a 2003 article in Health Affairs by Gerard Anderson, Uwe Reinhardt, et al. Fourteen years ago, these authors pointed out that the United States spent more on health care than any other country in the world, but had lower utilization of health services compared with other wealthy countries.

Thus, the difference in spending in U.S. healthcare was seen to be caused mostly by higher prices for health care goods and services.

Plus ça change, plus c’est la même chose…the more things change, the more they stay the same, a great French writer observed back in 1849.

And so here we are, with medical prices continuing to drive health spending growth since Gerard and Uwe noted “It’s the Prices, Stupid.”