LTC Bullet:  Pandora Meets Rosy Scenario in CMS Projections

Friday, July 31, 2015


LTC Comment:  The aging demographic evils in Pandora’s “box” don’t find their way into CMS actuaries’ health expenditure estimates for the coming decade.  Quotes and comments after the ***news.*** [omitted]



LTC Comment:  Once a year, actuaries from the Centers for Medicare and Medicaid Services prepare a report estimating national health expenditures for the coming decade.  Each year, their findings are published by the journal Health Affairs.  This year’s article by Sean P. Keehan, et al., is titled “National Health Expenditure Projections, 2014-24: Spending Growth Faster Than Recent Trends.”  You can find it here, but it’s gated so we’ll give you a peek at some representative quotes followed by our comments. 

Quote:  "ABSTRACT Health spending growth in the United States is projected to average 5.8 percent for 2014-24, reflecting the Affordable Care Act's coverage expansions, faster economic growth, and population aging. Recent historically low growth rates in the use of medical goods and services, as well as medical prices, are expected to gradually increase. However, in part because of the impact of continued cost-sharing increases that are anticipated among health plans, the acceleration of these growth rates is expected to be modest. The health share of US gross domestic product is projected to rise from 17.4 percent in 2013 to 19.6 percent in 2024."  (p. 1407) 

LTC Comment:  That’s it in a nutshell.  Health costs are rising but more people are covered and thanks to an improving economy and less attractive public and private health insurance coverage we needn’t worry much about the long-term impact of population aging.  Hence there’s very little in this report, and nothing in the text, about future long-term care costs which are likely to do their worst damage outside the report’s totally inadequate 10-year window.  Pandora of the box, meet Rosy Scenario of the economic happy face.

Quote:  “Moreover, as the baby-boomer generation continues to age into eligibility for Medicare and as the Medicaid population ages, it is projected that nearly four out of every ten health care dollars will be spent on people enrolled in one or both of these two largely government-funded programs, in which per enrollee costs tend to be higher than average.” (p. 1408)

LTC Comment:  The first of the baby boomers don’t have their 85th birthdays, the age at which the risk of needing expensive long-term care begins to spike, until 2031, seven years after the last year in the CMS projections (2024).  Mentioning the baby-boomer generation’s growing impact on Medicare and Medicaid within a relatively harmless window of time has the effect of diminishing its importance.  Now is when we should be emphasizing the likely long-term impact of aging demographics, not tamping down such concerns.

Quote:  “Recent health spending trends, while low by historical standards, are consistent with expectations inferred from economic trends in the preceding periods that recently peaked in 2002 and reached a trough in 2013. Thus, health spending growth is likely to accelerate in response to improvements in economic conditions that are projected over the coming decade.”5   Footnote 5:  “Nominal GDP averaged 2.5 percent for 2008–13 and is projected to grow at an average annual rate of 4.9 percent for 2017–24.” (p. 1408)

LTC Comment:  Welcome to economic fantasyland.  GDP growth of almost five percent starting in 2017?  Don’t bet on it.  The U.S. economy succumbed to recessions in 2001 and 2008 following artificial booms created by irresponsible fiscal (deficit spending) and monetary (money printing and interest rate manipulation) policies.  The Obama Administration and the Federal Reserve doubled down on those same misbegotten fiscal and monetary policies after the Great Recession of 2008.  As a result, we’re in the Granddaddy of all artificial bubble booms right now and a truly catastrophic economic bust may be just around the corner.  In any case, the next bust is highly likely to occur within the ten-year time frame covered by the CMS health expenditure projections. 

Quote:  “In addition, the aging of the population is also expected to lead to increased Medicaid spending (5.9 percent growth over the period on average), particularly for assistance in paying for nursing home care. Average Medicaid spending per beneficiary during this [latter] period is expected to grow more rapidly than in the earlier portions of the projection period, at 5.1 percent.” (p. 1413)

LTC Comment:  That quote is all there is about LTC in the text of the article.  The CMS actuaries provide special sections expanding on “hospital services,” “physician and clinical services,” and “prescription drugs,” but they focus nowhere on long-term care.  I searched the document for “LTC,” “long-term care,” “LTSS,” and “long-term services and supports” without a single hit!  This is further evidence of how short-sighted these projections are.

You have to dig into the article’s tables or “Exhibits,” to find any details relevant to the coming surge in long-term care costs.  For example, “Exhibit 1:  National Health Expenditures (NHE), Amounts And Annual Growth From Previous Year Shown, By Spending Category, Calendar Years 2007–24,” has rows for:

  • Nursing care facilities and continuing care retirement communities:  projected to increase from $126.4 billion in 2007 to $274.4 billion in 2024, representing growth of 117.1%, with annual growth rates declining from 6.8% in 2007 to 5.8% in 2024

  • Home health care:  projected to increase from $57.8 billion in 2007 to $156.0 billion in 2024, representing growth of 169.9%, with annual growth rates declining from 10.1% in 2007 to 7.0% in 2024

  • Other health, residential, and personal care:  projected to increase from $107.7 billion in 2007 to $251.1 billion in 2024, representing growth of 133.1%, with annual growth rates declining from 9.3% in 2007 to 5.2% in 2024

The mean U.S. Gross Domestic Product growth since 2007 has been less than two percent.  (Source:  Trading Economics,  What possible hope can we have that the U.S. economy will keep up with the 5.8%, 7.0% and 5.2% growth estimates for nursing care, home care and other personal care, respectively, projected for 2024, much less the far greater increases in these long-term care expenditure categories likely in the years following 2024?  Economist Herb Stein said “Trends that can’t continue, won’t.”  This is a perfect example.  What happens when they don’t?

Quote:  “With these changes in health insurance coverage, the share of national health spending paid for out of pocket is expected to decline from 11.6 percent in 2013 to 10.0 percent by 2024.” (p. 1414)

“Given the coverage shifts described above, by 2024 the share of national health spending financed by federal, state, and local governments is projected to rise to 47 percent from 43 percent in 2013, with total government spending projected to reach $2.5 trillion (Exhibit 4).”  (p. 1414)

LTC Comment:  The less people pay out of pocket for health and long-term care, the more unconcerned they become about the cost of their care.  U.S. health care financing dominated by third parties, including both public and private insurance and especially low-deductible coverage, has increased costs and reduced consumers’ sense of urgency about planning for potentially catastrophic health outcomes.  This is the tragic consummation that government intervention in the health care and private insurance marketplaces has caused.  We won’t see the full consequences of these policies for another decade after the CMS projections’ window.

The Center for Long-Term Care Reform and State Budget Solutions are preparing a 30-year projection of likely long-term care expenditures including recommendations to minimize damage to the country’s long-term care service delivery and financing system.