New estimates released Wednesday from the Office of the Actuary at the Centers for Medicare and Medicaid Services project an average rate of national health spending growth of 5.6 percent for 2016 to 2025, outpacing the average projected growth in gross domestic product by 1.2 percent.
As a result, the health share of the economy is projected to climb to 19.9 percent by 2025 -- up from 17.8 percent in 2015. These projections, released in the journal Health Affairs, are constructed using the framework of current health law, not taking into account any potential legislative changes over that time period.
The growth in national health spending is expected to be driven by projected increases in medical prices from a recent historic low of 0.8 percent in 2015, to nearly 3.0 percent by 2025. Growth in the use and intensity of medical services, however, is projected to slow relative to its pace in 2014 and 2015, as the impacts of the Affordable Care Act's coverage expansion wane and enrollment growth in Medicaid and private insurance slows down.
Changes in the age and sex distribution of the population are projected to consistently put upward pressure on growth throughout this period, contributing an average of about half a percentage point to annual growth.
The first two years of the projection period are expected to have the slowest health spending growth rates, 4.8 percent in 2016 and 5.4 in 2017, since Medicaid and private health insurance spending growth will slow and Medicare spending growth will remain low.
For 2018 and beyond, Medicare and Medicaid expenditures are expected to grow faster than in 2016-17, and more rapidly than private health insurance spending.
The study's authors cite several reasons for this. First, the use of Medicare services is expected to increase from its recent historical lows. Second, the Medicaid population mix will trend more toward older, sicker, and more costly beneficiaries. Third, baby boomers will continue to age into Medicare, with some dropping private insurance as a result.
Finally, growth in the demand for healthcare for those with private insurance is expected to slow as enrollees face gradually rising healthcare prices and slowing income growth.