Health Spending to Grow 5.6% Over 2016-2025

Health expenditures will grow faster than GDP and represent an increasingly larger share of GDP.

National health spending will grow by an average 5.6 percent each over from 2016 to 2025, according to a new report from the Centers for Medicare & Medicaid Services’ Office of the Actuary (OACT).

In fact, national health spending growth will outpace projected growth in gross domestic product by 1.2 percentage points, and healthcare’s share of GDP will rise from 17.8 percent in 2015 to 19.9 percent by 2025, according to the OACT report.

The key drivers for this growth will be a rapid uptick in overall medical prices. After seeing the low growth of 0.8 percent in 2015, Medical prices will shoot up nearly 3 percent by 2025. That said, the report noted that a slowdown in the use of medical goods and services will temper the price increases.

Total health spending for 2016 will hit nearly $3.4 trillion, a 4.8-percent increase from 2015, the OACT projected. For this year, total health spending is projected to grow by 5.4 percent, led by increases in private health insurance spending. By 2025, federal, state and local governments are projected to finance 47 percent of national health spending, a slight increase from 46 percent in 2015, according to the report.

The report projected that Medicare spending will have grown 5 percent in 2016, and will average 7.1 percent over the full projection period 2016-2025, according to the report. Medicare spending per beneficiary will grow 4.1 percent during 2016-2025, up from the 2010-2015 period’s 1.6 percent growth. 

“After an anticipated slowdown in health spending growth for 2016, we expect health spending growth to gradually increase as a result of faster projected growth in medical prices that is only partially offset by slower projected growth in the use and intensity of medical goods and services,” said Sean Keehan, the study’s primary author. “Irrespective of any changes in law, it is expected that because of continued cost pressures associated with paying for health care, employers, insurers, and other payers will continue to pursue strategies that seek to effectively manage the use and cost of health care goods and services.”  

About the Author

David Kopf is the Editor of HME Business.

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