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Policy: Budgets & Deficits

Government actuaries see Obamacare driving up healthcare costs over next decade

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Health spending grew at a relatively slow rate in 2013, according to a government analysis released on Wednesday, but it is expected to accelerate over the next decade as the economy improves, baby boomers retire, and more Americans gain coverage through President Obama’s healthcare law.

Over the past four years, healthcare spending has grown at a low rate by historical standards. This has led to a fierce debate within the healthcare policy community as to whether the changes are a short-term trend attributable to the weak economy, or part of a longer-term shift in spending patterns. The ultimate answer has major economic and fiscal ramifications, because healthcare is one of the main drivers of the nation’s long-term debt problem.

When Obama was selling his healthcare legislation, he argued in a June 2009 speech to the American Medical Association that his brand of reform was needed because “the status quo was unsustainable.” He warned, “If we fail to act, one out of every five dollars we earn will be spent on healthcare within a decade.” And since the law's passage, he has tried to credit its provisions for the recent slowdown in health costs.

In a report published on Wednesday by the journal Health Affairs, actuaries at the Centers for Medicare and Medicaid Services – who are viewed as the official source of health spending data – wrote that the recent slowdown in health spending was actually “primarily attributable to the sluggish economic recovery and constrained state and local government budgets following the 2007–09 recession.”

Though the actuaries estimate that spending increased by a relatively modest 3.6 percent in 2013, they expect that growth rate to spike 5.6 percent in 2014 as an estimated 9 million previously uninsured Americans gain health coverage through Obamacare and spend more money on medical services. The actuaries project the law’s expansion of Medicaid will drive up spending on the program by 12.8 percent this year.

The actuaries note that, “In addition to the short-term increase in spending growth associated with the coverage expansions in the Affordable Care Act (ACA) in 2014 and beyond, economic growth during the next decade is projected to be faster than it has been since 2007.”

As the economy improves, Obamacare continues to expand, and the Medicare age population explodes, health spending is expected to rise by an average of 6 percent a year over the 2015 to 2023 time period. Though this would be lower than the 7.2 percent average over the 1990 to 2008 span, it would still outpace the growth of the economy.

Because of this, health spending as a share of gross domestic product is expected to increase from 17.2 percent in 2012 to 19.3 percent in 2023 – representing nearly one in five dollars of the economy.

The actuaries also expect spending on prescription drugs to pick back up. In 2012, spending growth in this sector was nearly flat, at 0.4 percent, as many major drugs had become available in generic form. But spending on drugs is estimated to have grown 3.3 percent in 2013 and is expected to spike by 6.8 percent in 2014 due to increased coverage through Obamacare and “expensive new hepatitis C treatments.” The latter is a reference to Sovaldi, a drug that cures 90 percent of Hepatitis C cases, but has generated controversy because it costs $1,000 per day, and $84,000 for a full 12-week treatment.

The actuaries caution that their projections are “subject to substantial uncertainty” given the unpredictable nature of future economic performance as well as the effects of Obamacare.

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