US Healthcare Costs to Outpace GDP Growth in Next Decade

Healthcare spending to comprise 19.9% of the economy in 2025, up from 17.8% in 2015

The US Centers for Medicare and Medicaid Services (CMS) has stated that the cost of medical care in the US is expected to grow at a faster clip over the next decade, with the overall health spending growth outpacing that of the gross domestic product, as reported by Reuters on February 15th, 2017. In its report, the CMS has cited the aging of the enormous baby boom generation and overall economic inflation as prime contributors to the projected increase in healthcare spending.

Overall healthcare spending will comprise 19.9% of the economy in 2025, up from 17.8% in 2015, the report forecast. The pace of growth in US spending on healthcare is expected to pick up in 2017, increasing 5.4% over 2016. That compares with an estimated 4.8% spending uptick in 2016. Spending for 2016 was estimated at $3.4 trillion.

The growth in prescription drug spending for 2016 is expected to have slowed to 5% from 9% in 2015. However, CMS has forecast a growth rate of 6.4% per year between 2017 and 2025, in part because of spending on expensive newer specialty drugs, such as for cancer and multiple sclerosis. The projections for 2016 to 2025 were made assuming that the Affordable Care Act (ACA), former President Barack Obama’s signature healthcare law widely known as Obamacare, would remain intact. It does not take into account any likely changes to the law.

The ACA expanded Medicaid, the government health insurance program for the poor, in more than 30 states and set up private healthcare exchanges that enabled previously uninsured people to buy health insurance. After high enrollment between 2014 and 2015, Medicaid and private health insurance spending were expected to have slowed in 2016.

On the other hand, spending on Medicare, the government health insurance program for the elderly, is expected to grow between 2017 and 2025 as a larger elderly population requires more medical services. The overall insured rate of the population is expected to reach 91.5% in 2025, up from 90.9% in 2015, the report said.

Trump administration repeals Obamacare

In recent months, there has been a lot of uncertainty over the fate of Obamacare. President Donald Trump, who assumed office on January 20th, 2017, has said he is open to keeping some elements of Obamacare, but congressional Republicans have sought to repeal the entire program. Among his other populist measures, the new President has also pledged to clamp down on drug prices and make it more affordable for the poorer population under the ambit of Obamacare.

While the Trump administration is yet to present a replacement plan, US private health insurers are working with Republican lawmakers to save certain aspects of Obamacare individual plans, while cutting down on the risk to their bottom-lines and any hikes in premiums that threaten the viability of health insurance market. The main points being debated are the eligibility criteria for Americans to sign up for individual insurance, stricter enforcement of eligibility for these plans, and ways to put more control over insurance in the hands of states as the federal oversight of Obamacare is deregulated. On the other hand, health insurers have emphasized that it is crucial to keep government subsidies for low income people.

The Trump administration is mainly focusing on deregulation in healthcare, energy, and manufacturing. The deregulation push is seen to be an advantage for insurers, who have pushed for continuance of government funds to subsidize health benefits at least for the next two to three years. One of the key issues that are expected to be addressed by the Trump administration includes the law’s requirements for individuals to have insurance.

Will healthcare policy changes benefit Americans?

The health care industry is in a state of flux, and difficult decisions will need to be made that will directly affect Americans both socially and economically. The main aim of Obamacare is to extend health insurance coverage to some of the estimated 15% of the US population who lack it. This population includes those that receive no coverage from their employers and are not covered by US health programs for the poor and elderly. To achieve this, the law requires all Americans to have health insurance, but offers subsidies to make coverage more affordable and aims to reduce the cost of insurance by bringing younger, healthier people into the medical coverage system. It is estimated that 22 million would lose medical insurance if Obamacare were repealed.

Some of the major problems of Obamacare are that states were supposed to expand the number of people who qualified for Medicaid, which had been reserved for the poor, and in return the federal government would provide the states more funding. However, some states chose not to participate in Medicaid expansion. Another major issue is that insurance companies are backing out of participating in Obamacare because fewer Americans than anticipated are signing up; that in turn raises insurances costs for everyone, which then further drives down participation.

Moreover, premiums are to rise by an average of 25% in 2017. Consequently, government subsidies to help pay for insurance are also set to increase. It now remains to be seen whether the Trump administration irons out these issues while achieving their broader ambitions of increasing insurance coverage and reducing drug prices.

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