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​U.S. Health Spending to 2025 (Part 2)

By: | Tags: | Comments: 0 | September 16th, 2016

In our last blog, we discussed that the United States crossed another major milestone in healthcare spending in June of 2016, when the national healthcare expenditures topped $3.2 trillion USD representing 18.2% of GDP.  We also discussed that with every downturn in the economy, healthcare has leapt to a new level that has not been previously seen.  What does the future hold for us as a country today?

I made the decision to go into healthcare over a quarter century ago.  My first and second means of communication (real estate and construction) were effectively chosen by family interest in both.  However, healthcare was different, and could very well become the new family business.

Being a baby boomer myself, I recognized that the “baby boomers” were moving toward the “master trend” and it led me to read up on that.  I did all I could to get in the healthcare industry, and I was blessed to find a way in, learn all I could, and work my way up.

That master trend I am part of was this large generation that would get old, and would take what was already a great business to new heights.  As previously discussed, there has not been a year-to-year contraction in healthcare spending since at least 1965.  Today, with the U.S. share of gross domestic product (GDP), we are the inflection point in healthcare.

Approximately 10,000 people a day are turning 65 years old, every day for the next 20 years.  I will have the opportunity in 2025.  You can now understand why I tell everyone that healthcare is the place to be, and in our blog of January 28, 2016, I suggested that “if you are not in to healthcare or technology and technology driven solutions, tread carefully.”

In researching some additional data, I recently read the U.S. Government actuaries at the Center for Medicare and Medicaid (CMS) reported their expectation for healthcare expenditures by segments to 2025.  Care to guess what it has to say?

Here is the CMS abstract verbatim:

Health spending growth in the United States for 2015–25 is projected to average 5.8 percent—1.3 percentage points faster than growth in the gross domestic product—and to represent 20.1 percent of the total economy by 2025. As the initial impacts associated with the Affordable Care Act’s coverage expansions fade, growth in health spending is expected to be influenced by changes in economic growth, faster growth

in medical prices, and population aging. Projected national spending growth, though faster than observed in the recent history, is slower than in the two decades before the recent Great Recession, in part because of trends such as increasing cost sharing in private health insurance plans and various Medicare payment update provisions. In addition, the share of total health expenditures paid for by federal, state, and local governments is projected to increase to 47 percent by 2025.

(HealthAffairs, August 2016)

In short, the answer is that healthcare is going to increase from 18.2% to 20.1% of U.S. GDP in the next eight years and will hit $5.6 trillion (USD); putting that in long-hand equals $5,631,000,000,000.00 (USD).  I have to tell you, the first time I wrote that, I had to count all the zeros as I did not have enough of them.  Now, let’s go forward and look at the demographics in 2025; I will be 65 however, the last of the boomers will just be 60, and the leading boomer will be a young 78.  What happens after that?  What would happen if we projected just another five years to 2030? More on this topic in a future blog.

For now, what is the solution?  We think we know what will certainly help.

1. Reducing the cost of care by using more technology to collect, analyze, and make actionable.

2. Engaging the consumer with their own wellness in part by using more health IT.

3. Promoting better care coordination between providers of care and their patients.

4. Advancing a more efficient and transparent system that reduces waste and administration.

5. Adopting a payment model to be more aligned with care, and less to do with visits.

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