After enjoying a historically low rate of growth in health care spending, patients, the government and private insurers collectively are once again approaching an era of acceleration – though growth rates during the next 10 years still arent projected to reach the high levels that defined the period leading up to the Great Recession.
But while the latest numbers are modestly higher than previous projections, they dont account for a key factor that could significantly escalate growth in coming years. Prescription drug innovation – one of the driving forces that contributed to the growth in health care spending in 2014 – remains largely unknown, as analysts cannot predict what drugs the Food and Drug Administration will approve. Drug makers are investing in speciality medicines, which are complex, injected drugs that are expensive to develop and costly when they reach the market.
“This is one of the big areas of uncertainty,” Sean Keehan, an economist in the Office of the Actuary at the Centers for Medicare and Medicaid Services, said Tuesday at the National Press Club in Washington, D.C., during an event held by the journal Health Affairs. “We dont know which drugs will be approved and how effective they will be.”
The actuarys office releases an analysis every year on how Americans are likely to spend their health care dollars over the course of a decade. The latest figures were released Tuesday in Health Affairs and revealed that health care spending as a share of the economy is projected to rise from 17.4 percent in 2013 to 19.6 percent in 2024, totaling $5.4 trillion.
Health spending nationwide was projected to have reached $3.1 trillion last year, a 5.5 percent increase over 2013. It marked the first time since 2007 that the rate of increase exceeded 5 percent. Budget analysts attribute the growth in part to the development of new medications, which caused a 12.6 percent increase in prescription drug spending – significantly higher than the 2.5 percent growth seen in 2013. The sharp rise came after years in which the shift from brand-name medications to less expensive generic drugs had driven rates lower.
Four of the costly new drugs that reached the market in 2014 – including Sovaldi, which runs $1,000 a pill, or $84,000 for a typical 12-week course of treatment – received approval from the FDA for the treatment of hepatitis C, a disease of the liver that can require a transplant if it turns into a chronic infection. Drugs to treat cancer and multiple sclerosis had a smaller impact.
Other factors that are expected to contribute to an average growth in health care spending of 5.8 percent during the coming decade include an aging population, faster economic growth, and President Barack Obamas health care law, the Affordable Care Act, which contributes to health care spending by increasing the number of people on insurance rolls by 8.4 million in 2014.
The law creates online exchanges, or marketplaces, that allow low- and middle-income people to sign up for tax-subsidized insurance beginning in 2014 for people who signed up during the first open enrollment period. Another portion of the law, which took effect last year, allows people who make less than $29,700 for a family of four to sign up for Medicaid. Though the law originally intended for all states to take part in the expansion, the Supreme Court ruled in 2012 that it was optional.
Spending on private health insurance plans increased by 6.1 percent, or $1 trillion, partially because more people were enrolled in health insurance, but primarily because consumers paid more for their own care. “In private health insurance, more of the cost is being pushed onto consumers,” John Poisal, deputy director of the National Health Statistics Group at the office of the actuary, said at Tuesdays event.
As a way to control expenses, employers have been increasingly deflecting more costs onto employees, whether through premiums or high-deductible plans. This trend is expected to continue through 2024 and has caused some consumers to be more cautious about when and whether they seek care.
In coming years, plans also are increasingly expected to include narrow networks, which control the costs of plans by selecting only certain providers for care. In some cases, patients discover after a surgery that a member of their medical team was not in their approved network and are forced to pay out-of-pocket for that care. This kind of result could discourage them from seeking care needed in the future.
In 2018, the excise tax, or “Cadillac Tax,” on high-cost employer-based insurance plans begins, which could result in some employers reducing the generosity of their plans to avoid the tax.
Growth in premiums per enrollee are expected to slow to 2.8 percent because healthier enrollees signed up for insurance through the marketplace and there wasnt the jump in ACA-mandated health benefits offered that were seen the previous year, which include preventive services and mental health care.
In 2015, national health spending growth is projected to slow to 5.3 percent, due to a slowed enrollment in Medicaid after the 2014 surge and after temporary ACA-mandated increases in Medicaid payments to doctors expire.
Projections show that in 2015 prescription drug spending is expected to slow, as payers and the drug industry negotiate prices, authors wrote.
The report, however, did not include Praluent, the recently approved injection drug to treat high cholesterol, which puts people at risk for heart attack or stroke. The drug is expected to cost $14,600 a year – meaning that the final price tag could be high given that a third of Americans have high LDL (or “bad” cholesterol). The drug maker, Sanofi, estimates 8 million to 10 million patients could quality for the drug and have said that it saves health care costs associated with hospital care after a heart attack.
Contrary to the notion that expensive prescription drugs would drive up the cost of health care spending, drug makers say that prescriptions that treat or even cure a range of difficult illnesses, though expensive, may still cost less than a trip to the hospital would, particularly if it includes surgery and several overnight stays.
Keehan said at the event that it was possible that other similar drugs might emerge, offering more price competition. It also was possible, he said, that payers would push for the already-available generic alternatives, ensuring that those who truly needed the drugs were the ones getting them.
He acknowledged that if new and expensive drugs are released in coming years it could be a cause for why spending in the report might be under-projected.
Numbers provided by the actuarys office show that prescription drugs share of GDP is projected to be 1.75 percent in 2014, 1.83 percent in 2015 and reach 2.03 percent in 2024.
The federal government is projected to take on a greater share of health care costs through programs like Medicare, which covers Americans age 65 and older. From 2016 to 2018, Medicare spending growth is projected to average 6.3 percent, compared with 4.7 percent in 2015. By the 2019 to 2024 period, it is expected to average 7.9 percent. The number of enrollees is increasing each year, as 19.1 million baby boomers are expected to age into the program. As they get older, they are likely to need more robust care and to develop more complicated medical conditions.
Spending on Medicaid, which covers low-income Americans but kicks in to pay for nursing home care when people have depleted their assets, is projected grow by 5.9 percent from 2019 to 2024. The report estimates the numbers assuming that 55 percent of states expand Medicaid by 2017 and beyond.
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