How retiring baby boomers will push health spends to $6 trillion
As more baby boomers reach retirement age and begin to enroll in Medicare, more money will be spent on their healthcare needs as a result. This includes inpatient hospital care, prescription drugs, mental health care and home health care. With this growing demand, it can be expected that health spends will increase, but by how much? The Office of the Actuary at the Centers for Medicare and Medicaid Services (CMS) released its annual estimates for national health expenses for the next decade. Here are the projections:
- Increase in average healthcare expenses – The average spending growth from 2018 to 2027 is expected to see an annual proliferation of 5.5% – an increase from 2018’s 4.4%.
- Healthcare costs will increase – The prices of healthcare goods and services are anticipated to rise by an average of 2.5% annually from 2018 to 2027, contributing to nearly 50% of the estimated growth in personal healthcare spending. For comparison, during the period of 2014-2017, there was an increase of 1.1%.
- Medicare spending growth is set to rise – Medicare spending growth is expected to increase by an average rate of 7.4% each year from 2018 to 2027. In comparison, Medicaid has a 5.5% average annual growth and private health insurance a 4.8% average annual growth for the same years.
What’s causing this increase in healthcare spending?
- Rise in economic factors like employment, income and disposable personal income
- Key demographic factors like baby boomers starting to transition from private insurance into Medicare
- Increase in prices for medical goods as well as services
This estimated increase in Medicare spending comes at a time when 2020 presidential candidates and senators are pushing to change the age limit for Medicare to 50 years old. There are already upwards of 10,000 Americans turning 65 and transitioning into Medicare each day.
What does this mean for Medicare enrollees and enrollments?
Now that the Affordable Care Act’s individual mandate has been rescinded, private insurance spending has seen a drop as some people chose to drop coverage. In comparison, The Office of the Actuary at the Centers for Medicare and Medicaid Services estimates that 73.5 million people will be enrolled in Medicare by 2027; a sharp increase from 57.2 million in 2017. This may contribute to the rising healthcare costs projected in the near future:
- By virtue of the baby boomer population aging into Medicare, 47 percent or about half of U.S. health expenditure by 2027 will be bankrolled by federal, state and local governments.
- There has already been a predicted increase in prices for prescription drugs for the coming years, with a projected average of 5.6 percent from 2018-2027. How then do seniors pay for their growing medicinal needs? They enroll with Medicare and its drug coverage. With new drugs being introduced to the market and prices expected to intensify, spending on prescription drugs is expected to rise even more between 2020 and 2027.
- Hospital expenditure is estimated to have increased by 4.4 percent in 2018 and is anticipated to rise by 5.1 percent in 2019. This increase will continue with a projected average increase of 5.7 percent each year from 2020 to 2027.
- Out-of-pocket expenditures are also anticipated to increase at an average growth rate of 4.8 percent, which will represent 9.8 percent of total spending by 2027. With baby boomers living longer, they need better healthcare facilities and long-term support as they advance in age.
- Physician and clinical services expenditure are likely to grow an average of 5.4 percent annually through 2027 due to an estimated rise in pay, and a rise in demand from the elderly and aging population.
With this rise in health care spending, it’s important for Medicare enrollees to ensure they spend wisely on healthcare and choose Medicare plans that offer the best quality they can afford. Make sure you compare quotes from health insurance providers to find the plan that will best meet your needs.