The High Cost of Healthcare. Why?

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Why The Rise In Healthcare?

Out-of-pocket spending growth is projected to have grown faster at 3.6 percent in 2018, from 2.6
percent in 2017, due to faster income growth, as well as higher average deductibles for private
health insurance enrollees with employer sponsored insurance. In 2019, out-of-pocket spending
is expected to grow more rapidly, at 4.8 percent, in part because fewer people have private
insurance coverage due to the effective repeal of the individual mandate. Over 2020-27, out-ofpocket spending growth is projected to accelerate from 2019 to an average annual rate of 5.0
percent, which is a similar rate as private health insurance during this period. During this
timeframe, somewhat faster growth is projected for 2022, a year in which OOP spending is
anticipated to grow 5.4 percent related to the excise tax on high-cost insurance plans.

National health spending is projected to grow at an average annual rate of 5.4 percent for 2019-28 and to reach $6.2 trillion by 2028. 

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What’s The Breakdown

Prescription Drugs
After having grown just 0.4 percent in 2017, prescription drug spending is projected to have
grown 3.3 percent in 2018. This acceleration is due to faster anticipated utilization growth
partially driven by an increase in new drug introductions. Prescription drug spending growth is
then projected to further accelerate to 4.6 percent in 2019, because of faster utilization growth
from both existing and new drugs, as well as a modest increase in drug price growth. For the
reminder of the projection, 2020-27, prescription drug spending is projected to grow by 6.1
percent per year on average, or 1.5 percentage points more rapidly than in 2019, influenced by
higher use anticipated from new drugs and efforts by employers/insurers that encourage patients
with chronic conditions to consistently treat their disease.

Hospital spending is projected to have grown 4.4 percent in 2018, which is slightly slower than
the rate observed in 2017 of 4.6 percent. This similar, but slightly lower, rate of growth is largely
due to slower growth in both Medicaid and private health insurance hospital spending in 2018. In
2019, because of faster Medicare spending growth (higher hospital payment updates) and
Medicaid spending growth (higher use associated with the new expansion-related enrollees),
hospital spending growth is projected to have accelerated 0.7 percentage point to 5.1 percent.
Hospital spending growth is projected to accelerate to 5.7 percent per year on average over 2020-
27, because of faster spending growth from all payers (and Medicare in particular). Also
contributing to faster growth over 2020-27 is somewhat higher price growth arising from
expected increases in wage growth and tighter labor markets for hospital employees.

Physician and Clinical Services
Physician and clinical services spending is projected to have grown more rapidly in 2018, at 4.9
percent, from 4.2 percent in 2017. This faster spending growth reflects an acceleration in price
growth of 0.3 percentage point to 0.7 percent (which is still near historically low rates) and also
reflects higher anticipated use (related to the lagged response to income growth and more office
visits due to a severe 2017-18 flu season). Growth in physician and clinical services spending is
projected to accelerate in 2019 to 5.4 percent, which is primarily associated with higher use
arising from the Medicaid expansion in five additional states. Over 2020-27, physician and
clinical services spending is projected to grow by 5.4 percent per year on average. During this
period, growth in Medicare spending on physician and clinical services is expected to be faster
than growth in private health insurance spending on the sector largely due to the continued shift
of the baby-boom generation from private health insurance into Medicare. Also contributing to
the overall trend is faster projected growth in prices for physician and clinical services due to
anticipated rising wage growth related to increased demand from the aging population.

For more information about the rise in healthcare cost visit CMS.Gov/research