News & Commentary

Medicare To Take More of the Market


Much attention last month was given to the government’s projection contained in a Health Affairs study that national health spending will reach $10,000 per person per year for the first time this year.

That was the lead in the New York Times, but the second paragraph probably caught the eye of clinician executives at health insurance companies. It noted the continuing shift in enrollment numbers and spending away from employer-sponsored plans to Medicare, which is partly a reflection of the demographic bulge of baby boomers aging into retirement.

If the CMS actuaries are correct, public payers (federal, state, and local governments) will account for 47% of health care spending by 2025, or $2.7 trillion of the $5.6 trillion in national health expenditures. That’s nearly two percentage points higher than it was in 2014.

“The shares of spending by Medicare and Medicaid are projected to increase from 2014 (20.4% and 16.4%, respectively) to 2025 (22.8% and 17.3%, respectively), while shares of private health insurance and out-of-pocket spending decline from 2014 (32.7% and 10.9%, respectively) to 2025 (31.2% and 9.9%, respectively)…,” the study stated.

Between 2020 and 2025, private health insurance enrollment is expected to increase an average rate of 0.5% a year, or 2.3 percentage points slower than Medicare enrollment.

Researchers also looked at the excise tax on high-cost employer-sponsored plans (the Cadillac tax) that’s supposed to kick in in 2020. “As a result of the tax, some employers are expected to reduce benefits so they are not subject to the tax,” the study stated. “Accordingly, this reduction in benefits is also expected to contribute to faster growth in out-of-pocket spending, which is projected to average 5.5 percent in 2020–25 (compared to 4.8 percent in 2017–19).”

For prescription drugs in the 2017–2019 period, “it is expected that there will be significantly fewer top-selling brand-name drugs losing patent protection in 2017 and 2018, compared to the period 2011–’16,” the study stated. “As a result, a smaller number of new generic drugs (whose lower prices have typically helped offset annual increases in brand-name drug prices) is expected in these years, and therefore higher drug price growth is anticipated.”

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