In a departure from recent trends, national healthcare spending is now projected to grow an average 5.8% for 2014-2024, the government’s Centers for Medicare and Medicaid Services (CMS) said recently.

CMS actuaries cited “Affordable Care Act coverage expansions, faster economic growth and population aging” as key drivers in an article in the journal Health Affairs.   

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Health Spending Accelerating: Implications for ACA?

Mon Aug 17, 2015

In a departure from recent trends, national healthcare spending is now projected to grow an average 5.8% for 2014-2024, the government’s Centers for Medicare and Medicaid Services (CMS) said recently.

CMS actuaries cited “Affordable Care Act coverage expansions, faster economic growth and population aging” as key drivers in an article in the journal Health Affairs.

CMS forecasts that healthcare spending will represent almost one-fifth of U.S. GDP in ten years, when spending is expected to jump annually by 6%.

In a report on the CMS forecast The Wall Street Journal highlighted spending on prescription drugs, especially breakthrough specialty drugs, as contributing to the spending spurt.

But faster spending growth will be checked by “continued cost sharing increases that are anticipated among health plans,” according to actuaries. In other words, consumer-directed health insurance models have the potential to brake the spending acceleration.

High-deductible and HSA-based health plans can be counted on, therefore, to encourage consumers to better manage health spending decisions and help slow overall spending growth.

The new findings could have some implications for the Affordable Care Act and its network of federal and state health insurance exchanges.

First, in a validation of the law of supply and demand, the CMS actuaries suggest that Affordable Care Act coverage expansions, by increasing the demand for health services while the supply of healthcare providers remains relatively constant, could increase costs and insurance premiums. Faster economic growth and aging baby boomers similarly contribute to rising demand for healthcare.

Second, a bedrock principle of the health reform law is that with the help of both government subsidies and large risk pools of enrollees insurance premiums will prove more affordable. However, accelerating health spending could drive health costs higher, making insurance premiums less affordable, including for households buying coverage with subsidies on government exchanges.

Finally, consumer-directed health plans, health savings accounts and other higher-deductible/higher out-of-pocket cost sharing arrangements, to the extent they continue to blossom in employer-sponsored health plans as well as in exchange marketplaces, ultimately could help slow cost growth.

In some ways the report of the CMS actuaries is ominous—demand pressures on scarce health services appear to be resuming after a several-year lapse owing to a weak economy. Elected officials will need to keep a close eye on health spending and cost trends and be prepared to act—including to amend the Affordable Care Act if necessary—to achieve an oft-stated ACA goal: bending the cost curve down.