Health spending growth will accelerate through 2026

The growth in health expenditures nationwide is expected to average 5.5 percent annually through 2026, with the aging population driving more rapid annual growth in Medicare.

The annual report from the CMS Office of the Actuary and published by Health Affairs covers projected spending growth from 2017 through 2026. Last year, growth was projected to have ticked up slightly from 4.3 percent to 4.6 percent. 2018 is projected to see a larger jump to 5.3 percent, then average 5.5 percent for 2019 and 2020. From 2021 to 2026, average spending growth is expected to increase by 5.7 percent annually.

Medicare growth will be outpacing all other payers during this time period. The study projected average annual growth of 7.4 percent, higher than Medicaid (5.8 percent) or private insurance (4.7 percent), as more baby boomers become eligible for Medicare and leave their private plans. The slower projected growth among private payers means government funding will finance a greater share of health spending, rising to 47 percent in 2026 from 45 percent in 2016.

“While the aging of the baby-boom generation has significantly influenced Medicare enrollment growth in the recent past and will continue to do so, increases in the proportion of younger and relatively healthier Medicare beneficiaries are likely to continue to moderate the growth in Medicare per enrollee spending,” the study said.

For private insurance spending, the increasing prevalence of high-deductible health plans appeared to be the key factor in its slower projected growth. 28 percent of workers are now covered by those plans, compared to 5 percent in 2007. Beginning in 2020, growth in out-of-pocket spending will outpace growth from private insurance as those high-deductible plans slow down utilization, particularly for hospital and physician/clinical services.

Throughout the study period, the growth in health spending is projected to rise faster than gross domestic product (GDP) by 1 percentage point. By 2026, the study estimated healthcare’s share of GDP will rise to 19.7 percent, up from 17.9 percent in 2016.

While the last few years has seen a greater emphasis from CMS on a variety of value-based payment models in Medicare, lead study author and CMS economist Gigi Cuckler, MA, MBA said it’s too early to project whether those models can have a long-term impact on slowing spending growth.

“We have observed certified program savings for a couple of different programs, although the savings have not been very substantial,” Cuckler told reporters on a conference call. “At this point, it’s something we’re monitoring, but it’s too early to tell.”

The projections from CMS are all based on current law, so the study assumes the Affordable Care Act will remain in place. While the law wasn’t repealed over the past year, its individual mandate was eliminated beginning in 2019—which was partially responsible for a projected drop in the insured population from 91.1 percent in 2016 to 89.3 percent by 2026.