1. National Health Expenditure Projections, 2014–24: Spending Growth Faster Than Recent Trends Sean P. Keehan, Gigi A. Cuckler, Andrea M. Sisko, Andrew J. Madison, Sheila D. Smith, Devin A. Stone, Christian J. Wolfe, John A. Poisal, and Joseph M. Lizonitz Office of the Actuary Centers for Medicare & Medicaid Services July 28, 2015

2. For 2014-24, health spending is projected to grow at an average rate of 5.8 percent per year due to the combined effects of the Affordable Care Act’s (ACA’s) major coverage expansions, stronger expected economic growth, and population aging. Health spending is projected to grow 1.1 percent faster than Gross Domestic Product (GDP) per year over this period; the health share of GDP is expected to rise from 17.4 percent in 2013 to 19.6 percent by 2024. Given the ACA’s coverage expansions and premium subsidies together with population aging, federal, state and local governments are projected to finance 47 percent of national health spending by 2024 (from 43 percent in 2013). Although projected health spending growth is faster than in the recent past, it is still slower than the growth experienced over the last three decades prior to this most recent recession. Major Findings National Health Expenditure Projections, 2014–24

3. Growth in National Health Expenditures (NHE), Gross Domestic Product (GDP), and the Health Share of GDP, 1990-2024 NHE Growth (Blue) 2014-24 Avg. Annual Growth: 5.8% Health Share Of GDP Source: Keehan S et al., “National health expenditure projections, 2014–24: Spending Growth Faster Than Recent Trends,” Health Aff (Millwood) 2015; (To be published online 28 July 2015). Nominal GDP Growth (Red Dot) 2014-24 Avg. Annual Growth: 4.7% 2013: 17.4% 2024: 19.6%

4. After six years of growth averaging 4.0 percent, national health spending is projected to have grown 5.5 percent in 2014. Faster health spending due to ACA health insurance coverage expansions (8.4 million fewer uninsured in 2014) and rapid growth in prescription drug spending. Factors moderating health spending include the effects of continued increases in cost-sharing requirements in private health insurance plans and near historically low rates of medical inflation. After 2014, national health spending is projected to grow 5.3 percent in 2015 and peak at 6.3 percent in 2020. Over this time, medical inflation rates are anticipated to return closer to those observed over the last two decades together with economy-wide inflation. Medicare spending growth is expected to accelerate after 2015 due to expected increases in use of medical goods and services by aging beneficiaries and continued baby-boomer enrollment. Expected improvements in the economy contribute to faster projected growth in private health insurance spending, particularly after 2018. Major Findings (cont’d) National Health Expenditure Projections, 2014–24

5. NHE Projections Methods Projections for 2014-24 were developed using actuarial and econometric modeling techniques, by type of service/good, payer, and sponsor. Impacts of ACA coverage expansions were estimated using the most recent and updated version of the Office of the Actuary Health Reform Model (OHRM). Projections consistent with the 2015 Medicare Trustees Report, which incorporates recently enacted legislation that affects future Medicare physician fee schedule updates.

6. Projected NHE Distribution and Average Annual Growth by Type of Service 6 NOTE: Sum of pieces may not equal 100% due to rounding. All Other PHC includes spending for the categories of: Dental, Other Professional, Nursing Home, Home Health, Durables, Other Nondurables, and Other Personal Health Care. The Non-PHC categories are: Government Administration, Net Cost of Private Health Insurance, Government Public Health, Research, Structures, and Equipment. SOURCE: CMS, Office of the Actuary, National Health Statistics Group.

7. Projected NHE Distribution and Average Annual Growth by Payer 7 NOTE: Sum of pieces may not equal 100% due to rounding. SOURCE: CMS, Office of the Actuary, National Health Statistics Group.

8. Projected NHE Distribution and Average Annual Growth by Type of Sponsor 8 NOTE: Sum of pieces may not equal 100% due to rounding. SOURCE: CMS, Office of the Actuary, National Health Statistics Group.

9. Health Insurance Enrollment (in Millions) Historical Estimates Projection In 2014, the number of uninsured Americans is projected to have declined by 8.4 million to 35.7 million. Health Insurance Enrollment and the Uninsured

10. SOURCE: CMS, Office of the Actuary, National Health Statistics Group. Insured Share of the Population (%) Historical Estimates Projection The insured share of the population is projected to have increased to 89 percent in 2014 (from 86 percent in 2013). Insured Share of the Population

11. A Detailed Review of Key Findings by Time Period

12. After 6 years of growth below 5 percent, NHE is projected to have grown 5.5 percent. Faster projected growth is largely due to the coverage expansions under the ACA and a sharp rise in prescription drug spending. Projected NHE growth is 1.6 percentage points faster than GDP. Thus, after 5 years at 17.4 percent, the health share of GDP is projected to have increased to 17.7 percent. SOURCE: CMS, Office of the Actuary, National Health Statistics Group. Overview of 2014 Projection Annual growth in NHE, in historical context 2014 2015 2016 2019 2024 NHE

13. Key Findings for 2014 Projection Annual Growth For Major Payers, 2013 and 2014 Medicaid: faster projected growth in 2014 attributable to eligibility expansion. Private Health Insurance (PHI): faster growth due to implementation of Marketplaces, moderated by prevalence of plans with high cost sharing requirements. Out-of-Pocket (OOP): slower growth due to insurance coverage expansion. SOURCE: CMS, Office of the Actuary, National Health Statistics Group. 2014 2015 2016 2019 2024

14. Key Findings for 2014 Projection Annual Growth For Major Sectors, 2013 and 2014 Drugs: Much higher growth in 2014 due to new specialty drug treatments for hepatitis C and smaller effect of brand-name drugs losing patent protection. Physician: Effects of coverage expansion moderated by increased cost-sharing in private health plans. Hospital: Similar overall growth, but with substantial shifts in spending by payer. SOURCE: CMS, Office of the Actuary, National Health Statistics Group. 2014 2015 2016 2019 2024

15. Key Findings for 2015 Projected growth by Payer SOURCE: CMS, Office of the Actuary, National Health Statistics Group. Medicaid: growth faster than other payers due to coverage expansion. PHI: faster growth than NHE due to continued Marketplace implementation. Medicare: slower growth than other payers related to slowdown in spending on prescription drugs and physician and clinical services. 2014 2015 2016 2019 2024

16. Key Findings for 2015 Projected Growth by Sector SOURCE: CMS, Office of the Actuary, National Health Statistics Group. Drugs: faster growth than other services in 2015, but slower growth than 2014 due to lower costs associated with expensive specialty treatments for hepatitis C. Hospital: faster growth than NHE and faster growth than 2014, driven by coverage expansions. Physician: slower growth than other services in 2015 as temporary Medicaid payment increases to primary care providers expire. 2014 2015 2016 2019 2024

17. Key Findings for 2016-2018 Average Annual Growth For Major Payers Medicare: faster growth than other payers because of expectations that growth in the use and intensity of services will return closer to historic norms. Medicaid: slower growth than other payers due to slower enrollment growth. PHI: slower growth than NHE due to more employers anticipated to shift toward high- deductible health plans, increased utilization of narrow networks, and the implementation of the excise tax on high-cost employer-based insurance plans. 2014 2015 2016 2019 2024 SOURCE: CMS, Office of the Actuary, National Health Statistics Group.

18. Key Findings for 2019-2024 Average Annual Growth For Major Payers Medicare: faster growth than other payers because of continued strong enrollment growth and faster per enrollee spending growth as a result of aging of previously enrolled beneficiaries. Medicaid: slower growth than NHE due to enrollment growth, despite increased use associated with aged and disabled beneficiaries. PHI: slower growth than other payers as enrollees continue to shift into Medicare and out of PHI, despite faster projected economic growth. 2014 2015 2016 2019 2024 SOURCE: CMS, Office of the Actuary, National Health Statistics Group.

19. For 2014-24, health spending is projected to grow at an average rate of 5.8 percent per year due to the combined effects of the ACA’s major coverage expansions, stronger expected economic growth, and population aging. Health spending is projected to grow 1.1 percent faster than Gross Domestic Product (GDP) per year over this period; the health share of GDP is expected to rise from 17.4 percent in 2013 to 19.6 percent by 2024. Given the ACA’s coverage expansions and premium subsidies together with population aging, federal, state and local governments are projected to finance 47 percent of national health spending by 2024 (from 43 percent in 2013). Although projected health spending growth is faster than in the recent past, it is still slower than the growth experienced over the last three decades prior to this most recent recession. Major Findings National Health Expenditure Projections, 2014–24