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Trends in Health Spending by the Private Sector and Medicare 1 (June 1996)

handle is hein.congrec/cbo9201 and id is 1 raw text is: June 11, 1996 TRENDS IN HEALTH SPENDING BY THE PRIVATE SECTOR AND MEDICARE INTRODUCTION Recent evidence from a variety of sources--the national health accounts (NHA), surveys of private employers, and the experience of large groups of employees-- suggests that the growth in private health expenditures has slowed considerably in recent years, continuing at least through 1995. That decline has given rise to questions about the likely future growth of private health spending. It has also raised concerns about the comparative performance of the Medicare program, in which spending continues to increase rapidly. This memorandum explores those issues. CBO'S PROJECTIONS OF NATIONAL HEALTH EXPENDITURES The Congressional Budget Office's (CBO's) most recent projections of national health spending were distributed to the Congress in early 1995 and subsequently published as an appendix to The Economic and Budget Outlook: An Update (August 1995). Those projections assumed that total private spending for health insurance (including employment-based plans, individually purchased insurance, and medigap coverage) would grow by about 5 percent in 1994, 6 percent in 1995, and 7 percent in 1996. The projected growth rate for private health insurance premiums and benefits averaged about 7 percent a year over the 1995-2005 period. The latest indicators of trends in private-sector premiums, however, suggest that CBO's projections of 6 percent growth in 1995 and 7 percent growth in 1996 may have been too high. Information from surveys of employers, as well as the experience of several major groups of public employees, suggests that premiums actually grew more slowly in 1995 than in 1994, not more rapidly as CBO's earlier projections assumed (see Table 1). Although they are not without their limitations, those indicators suggest a continuing decline in employers' health insurance costs (see Appendix A). CBO plans to update its projections of national health expenditures later this year and, in the light of the 1995 data, is likely to lower its private-sector estimates for 1995 and 1996. At present, however, it is too early to conclude that the longer- term growth rates should be lowered. CBO's projections of private health expendi- tures are based on the assumption that continuing competitiveness in health insurance 1

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