June 12, 2012 / 8:03 PM / 7 years ago

US govt forecasts modest health spending growth

* Report forecasts slow growth through 2013

* Rate seen rising as economy grows, Baby Boomers retire

* Healthcare reform adds $478 billion but annual growth low

By David Morgan

WASHINGTON, June 12 (Reuters) - The annual growth rate for U.S. healthcare spending will hover near historic lows in 2013 and rise at a modest pace for much of the next decade, even if the Supreme Court allows the expansion of coverage to millions more Americans to proceed, a government report said on T ues day.

The U.S. Centers for Medicare and Medicaid Services said healthcare spending will rise about 4 percent a year between now and 2014, when President Barack Obama’s reform law takes full effect and provides coverage to more than 30 million uninsured Americans.

That compares with an average annual rate of 6.8 percent for the last decade. It reflects a modest economic recovery and a trend among employers to shift more insurance costs onto their workers through high deductibles, said the report, published by the journal Health Affairs.

“We attribute a lot of this to the lingering effects of the recession and also the modest recovery after the recession, with the effect that consumers are being cautious about using healthcare goods and services,” said Sean Keehan, senior economist at CMS, which is part of the Department of Health and Human Services.

The report forecast annual healthcare spending growth averaging 6.2 percent later in the decade as the economy rebounds and the Baby Boom generation retires in greater numbers, swelling the Medicare program for the elderly to 64 million beneficiaries and $1 trillion in spending in 2021.

Overall, healthcare spending is forecast to rise 5.7 percent per year between now and 2021, raising the spending total from a current forecast of $2.8 trillion to $4.8 trillion.

Spending is also predicted to reach 19.6 percent of U.S. gross domestic product from the current 17.9 percent.


The forecasts come ahead of a Supreme Court ruling later this month that could overturn all or part of the 2010 Patient Protection and Affordable Care Act, the most sweeping healthcare legislation since the 1960s.

Twenty-six U.S. states and an independent business group have asked the court to overturn the law, saying it exceeds the federal government’s authority under the U.S. Constitution.

The law also faces a political threat from Republicans, including the party’s presumptive presidential nominee, Mitt Romney, who have vowed to repeal the measure if they win control of the White House and Senate in the November elections.

Some private industry studies have also pointed to slower healthcare spending growth, due partly to the cost shift in employer-sponsored insurance.

Spending for 2013 could be higher than forecast if two of the report’s assumptions prove false, officials said.

CMS assumes that Medicare spending will be cut by 2 percent next year as part of efforts to control the federal budget and that Medicare doctors will face a 31 percent cut in pay. But both measures could easily be overturned in Congress by year end.

Officials said growth in healthcare spending, which has far surpassed the pace of economic growth and inflation in past decades, should remain within 2 percent of GDP growth for most of the coming decade.

One exception is 2014, when spending is forecast to jump 7.4 percent, partly as the healthcare law expands the Medicaid program for the poor and opens new state insurance markets.

Medicaid enrollment alone is expected to surge by nearly 20 million people in 2014, resulting in an 18 percent spike in program spending. By 2021, CMS projects that Medicaid, which is funded jointly by federal and state governments, will represent $957 billion in spending and 85 million beneficiaries.

States have also asked the Supreme Court to overturn the Medicaid expansion, fearing it will further pressure their deficits. The program is already consuming larger shares of state spending even as revenues recover.

Overall, the healthcare reform law is forecast to add $478 billion in new cumulative spending to the U.S. system by 2021. That amounts to only 0.1 percent added to annual healthcare spending growth over the decade and an equal-size reduction late in the period.

Health and Human Services Secretary Kathleen Sebelius claimed the report as a victory against critics who claim the law will accelerate healthcare spending. She specifically cited a projected 1.5 percent decline in out-of-pocket costs for consumers in 2014, which officials said would reflect lower expenses for the newly insured.

“Once implemented, the report shows that national health spending growth is projected to be lower than it would have been without the health care law,” Sebelius said in a government blog posting. (Reporting By David Morgan; Editing by Dan Grebler)

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