A new report, from the Office of the Actuary at the Centers of Medicare and Medicaid Services (CMS) in Baltimore, and published in the journal HealthAffairs on July 28, 2011, projects that overall U.S. health care costs will grow at an average rate of 5.8 percent per year over the next 10 years, while U.S. Gross Domestic Product (GDP) is projected to grow by only 4.7 percent per year over the same period.
The report, National Health Spending Projections Through 2020: Economic Recovery And Reform Drive Faster Spending Growth, by Sean P. Keehan, an economist at the Office of the Actuary, Centers of Medicare and Medicaid Services (CMS) in Baltimore, and colleagues, was published online in the July, 2011 issue of HealthAffairs.
According to the report, the projected increase in health care spending, expected to reach $4.6 trillion by 2020, is in large part due to the aging of the Baby Boom Generation (the 77 million Americans born between 1946 and 1964), in addition to the provision of new health care coverage for an additional approximately 30 million Americans under the Affordable Care Act, both of which will result in a strong increase in demand for health care services.
At the same time as the CMS Office of Actuary issued its report, a new Associated Press survey reported on July 28 by NPR shows that, in the current struggling economy, Baby Boomers are more worried than ever about being able to pay their medical bills as they get older. Fully 43% of those polled said they were “very” or “extremely” worried about being able to pay their medical costs, including long-term care.
What actions can help in dealing with these rising health and long-term care costs, both for you as an individual and for our nation?
The CMS Report – Understanding the Projections
First, it is important to understand the projections in the new report issued by the CMS Office of Actuary.
According to the report, growth in health care spending declined to a “historic low” of 3.9 percent in 2010 because of the recession. The experts project that by 2014 — when many provisions of the new Affordable Care Act become effective — growth in spending will accelerate to 8.3 percent. Thereafter, with the continued aging of the Baby Boomers, health care spending will increase further, creating the projected average increase of 5.8 percent per year over the 10 years from 2010 to 2020.
This report projects that without the Affordable Care Act, overall health care costs in the U.S. would have risen by an average 5.7 percent per year (only .1 percent less than with the Affordable Care Act in place) over the same 10 year period covered in the report. Yet, under the Affordable Care Act, an additional 30 million people will be covered by insurance. This will increase the demand for health care services and boost the health care sector of our economy.
The changes brought about by health care reform, are “expected to increase the demand for health care significantly, especially in the sectors of prescription drugs and clinical and physician services,” Mr. Keehan, the primary author of the report, and his colleagues noted.
Nevertheless, they wrote, “the Affordable Care Act only adds 0.1 percent to growth” in medical costs over this 10 year period, while covering an additional 30 million people for health care services.
At the same time, under the Affordable Care Act, a greater share of these costs will be borne by the federal government rather than fall on the backs of individual health care consumers.
“Robust growth in Medicare enrollment, expanded Medicare coverage, and premium and cost-sharing subsidies for [health care insurance] exchange plans are projected to increase the federal government share of health spending from 27 percent in 2009 to 31 percent by 2020,” the report’s authors concluded.
When monies projected to be spent by state and local government are added in, the public’s share of the overall spending for health care will increase to just under 50 percent by 2020, according to the report.
“Households and private businesses are anticipated to pay for a smaller portion of the nation’s health bill than they would have without the Affordable Care Act, but still will face a growing burden on their respective limited resources,” the authors wrote.
If health care costs rise by an average of 5.8 percent per year, while GDP grows by only 4.7 percent a year over the next decade, as projected, “that would cause an increase in health care’s share of GDP from 17.6 percent in 2010 to 19.8 percent in 2020,” Mr. Keehan explained.
Richard Hamburg, deputy director of the non-partisan advocacy group Trust for America’s Health, told HealthDay that he believes the rise in expenditure will be an important investment in a healthier population.
“From our perspective, the great new investment in the Affordable Care Act is the attention to prevention and public health,” he said. “Over time, investing in wellness and prevention programs will save money down the line; and while we save lives we will decrease the incidence of chronic diseases and save significant costs.” “People will live longer, more productive lives,” Hamburg said.
Fox News, perhaps predictably, is spinning the new CMS report under the headline “Another Damning Obamacare Report Trickles Out.”
The White House Blog issued a statement on July 28, in which they point out that the Affordable Care Act includes many provisions that will lead to significant reductions in health care costs which did not get picked up under the pure accounting approach taken in the CMS report.
For example, the White House lists the following programs of the Affordable Care Act as examples of additional health care benefits with cost savings that will come under the Act:
- “The Administration’s Partnership for Patients: Better Care, Lower Costs, a new private-publicpartnership to achieve two goals: reduce preventable hospital-acquired conditions by 40 percent and reduce hospital readmissions by 20 percent between 2010 and 2013. Over 2,000 hospitals as well as employers, physicians, nurses, and patient advocates have committed to these goals which, over the next ten years, could reduce costs to Medicare by about $50 billion and help put our nation on the path toward a more sustainable health care system.
- Support for voluntary Accountable Care Organizations that make it easier for health care providers to work together to coordinate care for an individual patient across care settings – including doctor’s offices, hospitals, and long-term care facilities. The Affordable Care Act rewards ACOs that lower health care costs while providing high quality care, and could generate as much as $960 million in Medicare savings over three years.
- Bundled payment programs that will reward doctors and hospitals for working together to provide higher quality care to patients rather than bill for each individual procedure or test.
- Demonstrations launched by the new Innovation Center that will build and test models that will save money for both Medicare and the private sector, and then expand the use of the models that work.
- Important investments in programs that save money over the long-term like prevention and wellness programs.”
What Can be Done to Help Address Our Increasing Health Care & Long-Term Care Costs?
On a national level, no doubt policy makers – both in government and in the private sector – will need to find additional solutions to help slow inflation in health care costs.
Meanwhile, what can you do as a Baby Boomer and family caregiver to secure your retirement future against the threat of rising health care and long-term care costs?
Here are some links to information that may be helpful to you on long-term care planning, retirement, financial planning, and estate planning, provided by U.S. government websites:
- Long-Term Care Planning Tool – provided by Medicare.gov
- Retirement Estimator – provided by Social Security Administration
- Estate and Gift Taxes – information from IRS.gov
- Financial Security in Later Life Extension Initiative – from USDA
- Retirement Plans, Benefits, and Savings – from U.S. Department of Labor
- Retirement Plans, What You Should Know – from U.S. Department of Labor
- Saving and Investing – multiple links from USA.gov
See HelpingYouCare™‘s resource pages on
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