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How will healthcare reform impact healthcare spending?

By Kyle Murphy, PhD

Following the one-time costs of implementing the Affordable Care Act (ACA), the health share of the country’s gross domestic product (GDP) is expected to increase at a slower rate than it has historically although it will still continue to grow.

That conclusion is based on projections in a recent Health Affairs article authored by the Centers for Medicare & Medicaid Services (CMS). An aging population and expanded health insurance coverage, however, should drive faster growth within a decade, the authors claim. Over the next decade, CMS anticipates an average increase of 5.7 percent annually with the health share of the GDP reaching 19.3 percent by 2023.

“The period in which health care has accounted for a stable share of economic output is projected to end in 2014, primarily because of the coverage expansions of the ACA,” write Sisko et al. “It is anticipated that by 2017, once the mostly one-time transition effects of expanded coverage have fully transpired, the health share of GDP will increase, albeit at a slower rate than its historical average, as an improving economy and the aging of the baby-boom generation lead to faster health spending growth.”

Source: Sisko et al., 2014

Source: Sisko et al. 2014

The recent recession is responsible for driving the annual growth rate of national health expenditures down, but its effects on keeping that growth rate historically low are atypical and inconsistent with a more comprehensive look at the relationship between the economy as a whole and healthcare expenditures.

Next year should prove particularly noteworthy as national health spending is projected to slow despite eight million Americans acquiring coverage through public and private health plans. “This slowdown is projected to occur because of significant decelerations in Medicare and Medicaid spending,” the authors argue. The end of 2015 will mark the turn in healthcare expenditures according to CMS’s ten-year outlook.

“These more favorable economic conditions are expected to result in greater demand for health care goods and services; increases in health coverage; and faster rates of health spending growth, particularly for private health insurance,” Sisko et al. maintain. “However, these rates of increase are expected to be dampened somewhat by the slower growth in Medicare payment rates mandated by the ACA and the ongoing trend toward higher cost-sharing requirements for the privately insured.”

In short, the effects of the ACA and health reforms are unlikely to be seen clearly until some of the dust settles from all these transitions currently underway or expected to begin shortly.

Read the full article here.

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