Health Expenditure Projections: When Does ‘New’ Become ‘Normal’?

The Centers for Medicare and Medicaid Services (CMS) has released its latest forecast of medical spending for the next decade. The headline number is that medical care as a share of gross domestic product (GDP) is expected to increase from its current 17.5 percent of GDP to 20.1 percent by 2025, resuming an upward increase after a several year slowdown. Forecasting is an inexact science. To make guesses about the future, analysts typically examine the past. The history of medical spending can roughly be described using Fuchs’ law: medical spending increases have exceeded GDP increases by about 2.5 percentage points annually since 1950. In the past three or four decades, the differential has been closer to 1.0 and 1.5 percentage points. Consistent with this, the Actuaries project that the growth of medical spending will exceed the growth of GDP by 1.25 percentage points annually between 2017 and 2025. Regardless of the exact differential, the qualitative conclusion is the same: if medical costs increase more rapidly than GDP, medical care will grow as a share of the economy. The continuity between past and future is critical to this conclusion. Generally speaking, what happened in the past is likely to repeat itself in the future. But what if the continuity is wrong? What if fundamental changes have reduced the long-run growth of medical spending relative to the economy? Figure 1 below shows the time series of real per capita medical spending increases and real per capita GD...
Source: Health Affairs Blog - Category: Health Management Authors: Tags: Costs and Spending Featured Insurance and Coverage Medicaid and CHIP Medicare Payment Policy ACA ACOs Alternative Payment Models MACRA spending projections Source Type: blogs