Health Care Costs to Skyrocket

NAHU Update – Aug. 1: A new study from CMS ‘ Office of the Actuary that was published in Health Affairs last week found that health care costs will rise at an average annual rate of 5.8 percent per year over the next decade, which is 1.1 percent more than our nation’s annual projected economic growth. By 2020, health care spending will represent almost 20 percent of all national spending.

This past year, health expenses went up by only 3.9% a record low which CMS attributes to the recession. However, CMS projects that health care spending will increase by leaps and bounds over the next few years, with a high of 8.3% in 2014 as a result of all of the new PPACA-required reforms that take effect that year. The study also found that who pays will change substantially in the future.

By 2020, 49% of all health care spending will be by federal, state and local governments. The federal share of the total is projected to grow from 27% in 2009 to 31% in 2020. Employers’ contribution will decline from 20% in 2014 to 18% in 2020, and personal health care spending (which includes both personal insurance costs like premiums and deductibles and also other out-of-pocket expenses like OTC medicines) will remain steady at 26 percent.

The study does caution that the figures it contains are merely projections, and are based on the assumption that all provisions currently in the law, including payment cuts to Medicare providers and the excise tax on high-cost health plans slated to go into effect in 2012 and 2018 respectively, will remain unchanged.

In addition, the study notes that other economic and political factors could have a substantial impact on these projections in the future. “These projections remain subject to substantial uncertainty given the variable nature of future economic trends and a lack of historical experience for many Affordable Care Act health system reforms,” the report states.

“Moreover,  ’supply-side’ impacts of the Affordable Care Act, such as changes in provider behavior in reaction to an influx of newly insured patients, remain highly uncertain and are not estimated at this time. “