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Volume 12 Number 34
ISSN 1091-4021
Friday, February 21, 2007

News: Costs

Although growth in U.S. health care spending slowed slightly in 2006 for the fourth straight year, overall health care expenditures are expected to double by 2016, when they will consume almost 20 percent of gross domestic product, predicted economists at the Office of the Actuary at the Centers for Medicare & Medicaid Services.

For 2006, growth in health spending is expected to slow slightly to 6.8 percent, down from 6.9 percent in 2005, and health care's share of gross domestic product is projected to remain unchanged at 16 percent, according to the Health Affairs magazine's Web-exclusive article by the CMS actuaries, scheduled for publication Feb. 21. The slower growth was attributed to smaller growth in hospital and physician payments, slower Medicaid and private spending growth, and the addition of the Medicare Part D drug payment.

Beyond 2006, the growth in health care spending is projected to remain relatively steady at 6.9 percent per year through 2016, and will grow an average of 2.1 percentage points faster per year than the economy. National health care expenditures will reach $4.1 trillion by 2016, nearly double the 2006 projection of $2.1 trillion.

Medicare

Although the Medicare Part D prescription drug coverage improved or provided new coverage for millions of seniors and is boosting utilization among that group, its net affect on aggregate spending is expected to be small, Christopher Truffer, an actuary in the CMS Office of the Actuary, said at a press briefing. This is in large part due to the discounts and rebates negotiated by the Part D plans, he said.

Still, the effects of Part D are just beginning to appear, and are creating dramatic shifts in payment distribution among Medicare, Medicaid, and the private insurance industry, according to the report. As a result of Part D, total Medicare spending is expected to reach $417.6 billion in 2006, up from $342 billion in 2005. In 2007, Medicare spending growth is expected to slow to 6.5 percent, in part because of legislated Medicare cuts in payments to managed care plans and slowing growth in physician payments.

By 2016, Medicare spending is expected to more than double from the level in 2006, to $862.7 billion.

Medicaid

Drug spending in Medicaid is projected to drop 36 percent in 2006, as low-income beneficiaries who are also eligible for Medicare began getting their drug coverage through the new Part D program in January 2006. In general, however, Part D plans have not been able to obtain drug prices as low as the state Medicaid programs had, and Part D plans are paying 5 percentage points to 6 percentage points more on average, according to John A. Poisal, deputy director of the National Health Statistics Group within the Office of the Actuary.

For 2006, Medicaid spending is expected to reach $313.5 billion, virtually the same as 2005, because of slowdowns in enrollment growth and a deceleration in payments to doctors and hospitals. Medicaid is seeing its lowest growth rate since the late 1990s. However, spending in the program is expected to rebound to 7.3 percent in 2007 and grow 8.1 percent per year on average from 2008 through 2016.

Other CMS Projections

Other CMS projections include the following:

• Prescription drug spending growth is expected to climb 6.5 percent in 2006, and will increase 8.6 percent per year on average until 2016, when it will total $497.5 billion. Contributing to the growth, researchers expect the generic dispensing rate to level off and for new higher cost brand name drugs to be approved for the treatment of cancer, diabetes, and other diseases.
  
  
• Hospital spending is expected to grow 6.6 percent in 2006, down from 7.9 percent in 2005. This diminished growth rate, the first decline in the rate of increase since 2003, is due to a slower hike in public spending, the report said.
  
  
• Private health insurance premiums are expected to grow 4.4 percent in 2006, a significant drop from a high of 11 percent growth in 2002, the report said. The drop is due, in part, to increases in consumers' out-of-pocket costs; slower growth in medical benefits per enrollee; and shorter contracts, coupled with a faster, more responsive underwriting cycle.
  
  
• Nursing home spending growth is expected to decelerate from 6 percent in 2005 to 3.4 percent in 2006, as a result of states' efforts to control long-term care costs in their Medicaid programs with new rules on asset transfers and similar provisions. Nursing home spending growth is expected to remain steady at about 5 percent from 2007 through 2010 before it gradually accelerates to about 5.5 percent by 2016.
  
  
• Fueled by spending boosts in Medicaid, home health care spending will grow to 12.5 percent in 2006, making it the fastest growing area of healthcare, although it represents a small part of overall spending at $53.4 billion.

The article, "Health Spending Projections Through 2016: Modest Changes Obscure Part D's Impact" is available at http://healthaffairs.org.