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$1 of every $5 spent in US will be on health care

Nearly $1 in every $5 spent in the United States by 2024 will be on health care, according to a government projection released Tuesday, forecasting a quickening of the health inflation rate. Nonetheless, that rate still falls well short of the sharply upward trend seen prior to the Great Recession.

Annual health spending is expected to grow an average of 5.8 percent during the period of 2014 through 2024, mainly because of the expansion in the number of people with health insurance due to Obamacare, stronger economic growth and an older population transitioning into the Medicare system, the Office of the Actuary at the Centers for Medicare and Medicaid Services said.

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Other factors driving the inflation include expected substantial increases in prescription drug spending, fueled primarily by new high-cost specialty drugs for hepatitis C, and new treatments for cancer and multiple sclerosis.

Health care costs
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By 2024, national health expenditures are forecast to be $5.43 trillion annually. Nearly half of that spending—47 percent—will be paid for by federal, state or local governments, primarily through the Medicare and Medicaid health coverage programs. That is up from 43 percent last year.

The rate of health spending growth being forecast represents a marked upswing from the historically low rate of health spending inflation of 4 percent annually seen between 2008—the first year of the worldwide economic downturn, and 2013, the year before the Affordable Care Act's coverage provisions began taking full effect.

The rate began rising more significantly last year, when it grew by an estimated 5.5 percent to reach $3.1 trillion in total spending, the first time since 2007 that health inflation had topped 5 percent.

But the 5.8 percent annual average rate being forecast over the next decade is also much less the the average annual increases of about 9 percent seen in the 30 years prior to 2008, noted a report on the projection published Tuesday in the journal Health Affairs. The new forecast average rate is 0.1 percent point higher than what the Office of the Actuary last year had projected for the decade, but still represents "modest" growth, the report said.

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"After six years of national health spending growth hovering near historically low rates, we're projecting faster growth in health spending, reflecting expanded insurance coverage under the ACA, expectations of continued improvements in the economy and population aging," said Sean Keehan, lead author of the Health Affairs report, and an economist in the Office of the Actuary.

"However, these projected growth rates are significantly lower than those observed over the three decades prior to the recent recession," Keehan said.

But increases in the numbers of insurance plans with higher cost-sharing requirements for customers, as well as reduced Medicare payments by the federal government, will help to keep the health spending rate below the 9 percent levels seen prerecession, according to the projection. More insurance plans are forcing enrollees to pay a bigger share of health costs out of pocket, which can keep the usage of medical services in check.

But because health inflation is expected to outpace inflation of the gross domestic product, as is typical, health spending will make up a larger part of overall U.S. spending by 2024.

Health spending in 2013 accounted for 17.4 percent of GDP. But by 2024, it is projected to make up 19.6 percent of GDP.

The forecast expects that spending from 2016 to 2018 will be grow by an average of 5.3 percent, but will speed up in following years, to 6.2 percent annually through 2024. The increase in later years is attributed to expected stronger economic growth, which usually is followed by increased use of health-care goods and services.

It is not known to what extent provisions in the Affordable Care Act will help contain health spending inflation over the next decade.

The ACA is responsible for some of the expected inflation because of its extension of health insurance, through government-run insurance exchanges and expansion of Medicaid in many states, to about 8.4 million previously uninsured people as of 2014. But the ACA is also designed to help control overall health spending by, among other things, reducing the amount of Medicare reimbursements the government pays.

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Keehan's co-author and fellow economist in the Office of the Actuary, Gigi Cuckler, said, "it's difficult to say" how much Obamacare will be responsible for keeping health spending below historically high rates through 2024.

"We no longer explicitly estimate the spending impact for the entire ACA," Cuckler said. "We no longer can come up with a counterfactual scenario whereby the ACA never passed."