Health and Science

Health spending picks up but lags shocking pace of '08


Almost $1 in every $5 of the nation's economy will be devoted to health-care spending by 2023, according to a new official projection that sees health costs once again accelerating this year after a half-decade of unusually slow growth.

Expanded medical coverage from Obamacare, an aging population and a healthier economy all will contribute to faster health spending growth equal to an average rate of 5.7 percent per year over the decade from 2013 to 2023, federal officials said Wednesday.

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But that still is lower than the 7.2 percent average growth in health spending seen from 1990 to 2008, noted the actuaries from the Centers for Medicare and Medicaid Services, whose projections are being published in an article in the journal Health Affairs.

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And while the growth in health spending will continue to outpace the overall increase in GDP, it will do so at a lower rate than that seen in prior years, the National Health Expenditure Projections report found.

The rebound comes after five years of historically low increases in health spending, which has been seen as the result of an unusually slow recovery after the 2008 worldwide financial crisis, the effect of the federal sequestration on Medicare spending and continued slow growth in the use of Medicare by the elderly population.

The report said that health spending in 2013 is believed to have increased by 3.6 percent.

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"This would be the fifth consecutive year of growth under 4 percent," said Andrea Sisko, a CMS actuary and lead author of the report.

But in 2014, health spending is estimated to be growing at a rate of 5.6 percent.

Spending is projected to slow somewhat next year, with a 4.9 percent increase—largely as a result of planned payment reductions in Medicare Advantage plans.

But the spending rate will ramp up again to 6.1 percent per year thereafter through 2023.

Sisko noted, "Analysis of historical trends tells us that health-care spending tracks with economic growth, so as the economy is anticipated to improve over the next decade, health spending growth is projected to grow faster.

"This, in addition to the baby boomers aging and increased insurance coverage mandated by the [Affordable Care Act] is expected to result in the health share of GDP rising to nearly one-fifth of the nation's economy by 2023."

The ACA beginning this year required that most Americans obtain some form of health insurance or pay a fine, a mandate that has been credited with adding millions of newly insured people, many of whom are buying medical services they had postponed.

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Expanded coverage from ACA provisions are expected to result in a 12.8 percent increase in Medicaid expenditures this year, and a 6.8 percent hike in private insurance spending.

In 2013, health spending was estimated to be about $2.9 trillion, which represents 17.2 percent of nominal GDP. That is projected to rise to 19.2 percent of GDP in 2023—or $5.2 trillion.

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While that dollar amount is sure to raise eyebrows, it also reflects a narrowing of the gap between the growth in health spending and the overall growth rate of GDP. From 1990 through 2008, health spending grew 2 percentage points faster than GDP.

From 2013 through 2023, health spending is projected to outpace GDP growth by just 1.1 percent, according to the projections released Wednesday.

By CNBC's Dan Mangan