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Health Affairs This Week places listeners at the center of health policy’s proverbial water cooler. Join editors from Health Affairs, the leading journal of health policy research, and special guests as they discuss this week’s most pressing health policy news. All in 15 minutes or less.
Hello, and welcome to Health Affairs This Week. I'm your host, Jeff Beyers. We're recording on 06/20/2025. Today on the program to talk about CMS's recent health spending projections that we released on Health Affairs on June 25, I have Michael Chernew from Harvard Medical School to talk about the projections. Michael, welcome back to the program.
Michael Chernew:Yes, thank you so much for having me.
Jeff Byers:For someone interested in health care, but maybe not health policy, what is the headline of these new projections?
Michael Chernew:I I think the headline is that health care spending as a as a share of GDP, that's national income. Gross domestic product rose to roughly eight percent 2024. And that acceleration, frankly, was a bit surprising. If you go back to this article, there's one like this produced every year. They were projecting roughly 5%.
Michael Chernew:So it was much faster growth than, was projected originally, which I think just illustrates how hard it is to project.
Jeff Byers:And listeners, if you are interested, we've been publishing this data from CMS for about thirty years now. So we have a rich collection of these projection articles and expenditure articles. The expenditure article likely will come out in December of this year. So this is just the latest rounds of that. The projections share that health care share GDP will reach about 20% by 2033.
Jeff Byers:So we've kinda heard this figure before and that health care will nearly hit a fifth of the GDP. So this is impressive, but is there a way to contextualize the significance of this? So just saying a fifth of the economy is like, okay. Cool. But, like, if I'm a lay person, like, what does that mean to me?
Michael Chernew:Well, I think it's hard to imagine anything as a percent of GDP. So one way to think through this number overall is that per capita, that's about gonna be about $25,000. Now there's gonna be inflation there. So $25,000 in 2033 will be a little bit less than $25,000 now. But the point is it's about the cost of a small car.
Michael Chernew:I think the key thing to think about, though, is what we're getting for that money. So in some articles like this that are focused on spending, we see spending rising as a share of GDP, and we focus on that and think, Oh my god, a 50 economy is going to GDP, dollars 25,000 per person going to healthcare, and we think, boy, that's a lot of money. And it is a lot of money, and it's certainly more money than it was before, and we worry a lot about how we're going to finance that money. But other articles that you'd also find in health affairs talk about people's access to care and new technologies and better cancer care and things we're getting. And so it's really that trade off from a perspective of policymakers.
Michael Chernew:I think the core challenge is how to make sure that people get access to the health care that they need to get in the most efficient way possible. And so we have a core conundrum between access to new services, better services, services that keep us healthy, and how we finance those services.
Jeff Byers:And what factors might change in these projections? So there's talks of insurance coverage, policy changes, etcetera. Can you break that down a little bit?
Michael Chernew:A general point is there's a lot of different ways to look at these projections. You can look at it by sector, Medicare, Medicaid, commercial. You can look at it by type of healthcare service, hospitals, physicians, drugs. And so depending on how you look at it, you can answer some of those factors, those questions differently. Two things that I would note, one of them is healthcare prices, particularly in the commercial sector.
Michael Chernew:So healthcare prices in the commercial sector are a big deal, and we think a lot about how to regulate healthcare prices in the commercial sector, or at least how to make markets more competitive so healthcare prices in the commercial sector don't rise as rapidly. In the public sector, as an aside, healthcare prices rise much, much more slowly, so we have to think about prices. The other thing that I think is important when you're thinking about these services and these projections is is called the volume intensity part, the utilization part. So about half of the growth relative to GDP is in more utilization and about half is in higher prices. And that higher price is concentrated in the commercial sector.
Michael Chernew:But the new stuff, the new utilization, the core question is, is that getting us the value that we would like? In 2024, there was roughly an 8% increase in spending. And what is unknown and what is very hard to tell from these types of analyses is what did we get for that 8%? Are we happy we had 8% more spending? Did we get stuff we like?
Michael Chernew:Or are we sad we got 8% more spending because it's just wasted health care?
Jeff Byers:Yeah. Is there a way to measure that? I know it's a different pay kind of paper, but, like, how are people looking into the value or the sentimental value or the margin utility value of health care services that they actually are used.
Michael Chernew:Yeah, you should never ask an academic, is there a way to measure that? Because the answer's obviously, of course there is. I would love to be able measure The short answer I'll give you is there's obviously a way to measure that. You could look over time at changes in mortality. You could look over time at changes in morbidity and a bunch of things like that.
Michael Chernew:But those things, well, mortality is easy enough to measure, morbidity is much harder to measure. But I think the core point is in the official statistics, we don't measure that as closely as one might, and it's even hard, if you look at this paper, to break out spending by disease category. So, for example, how much is in cancer? There's a lot of changes in the way we treat cancer, and by and large, I think most of your listeners would say that's a good thing. We like improvements in cancer care, but it is hard to know.
Michael Chernew:In this particular era, one of the things that people focus on, and again, I think as an overall contributor, it's probably small, but as a category just by itself is probably growing rapidly, would be things like skin substitutes. So most people don't walk around thinking about whether they need different types of skin substitutes, mostly because it's gross, But one has to think through in a clinical category like that, are things just priced too highly? Can we think about the prices? Are we using these new types of skin substitutes in the appropriate situations? Are we using them too much?
Michael Chernew:A whole bunch of things like that. And that type of microanalysis is difficult to weave in to the sort of macro story we're talking about today.
Jeff Byers:Yeah. And I'd imagine it's also would probably be somewhat hard to just, like, keep creeping the scope of a particular paper like this, which is meant to just kinda project
Michael Chernew:Absolutely. Absolutely. And so it's hard to go to that one stop paper that tells you this is all the nuance of what's going on because there's just so much nuance.
Jeff Byers:Yeah. Well, listeners can read the pages of health affairs to find all the intersections that other researchers are tackling on when it comes to the intersection of spending and utilization. Is there anything of note regarding the intersection of trends like insurance coverage in like Medicaid or in the aging of America at all with this paper?
Michael Chernew:I mentioned before the different sectors, commercial, Medicare, Medicaid, and they certainly interact. So, you know, one of the things that's happening here is we're sort of moving past the pandemic years and the pandemic years were a real challenge for forecasters because one, we didn't anticipate the pandemic and there was a dramatic reduction in utilization during the pandemic, and then there's a bounce back post the pandemic, knowing how much that pent up demand was, all the other things is sort of very challenging. But one of the things that happened was there was a lot more people that stayed on Medicaid and now we're rotating some of those people off into other types of coverage. So there's a shift between Medicaid and commercial as that happens. There's obviously a big impact of people aging onto Medicare.
Michael Chernew:So if you look at Medicare spending, about half of that, roughly speaking, is due to new people enrolling in Medicare, aging into Medicare, and that those people are, of course, coming out of the commercial sector. So there's connections between the enrollments between the sectors, and I think that's probably the the biggest connection between them, and we'll have to see. We're coming off a period of sort of record low uninsurance. We're gonna have to see as we move forward how the uninsurance rate evolves. The so the office of this paper had to make assumptions about how people are gonna move between the sectors.
Jeff Byers:Okay. So you mentioned uninsurance rates to check out, and you mentioned skin substitutes. Are there any particular areas of either spending or slices of this data that are of particular interest to you or in the way from a health economist lens? Like, we've talked about the agent of America. I think that's, like, something that a lot of listeners and researchers know about.
Jeff Byers:Is there any other sorts of trends or ideas within this data that would be interesting to note?
Michael Chernew:I spend a lot of time thinking about Medicare policy, and so I always am interested in what the projections are for the Medicare program. And one thing that's important to understand is that I think it's pretty well accepted and true that one reason why health care in The United States costs more than other countries is because we pay more in The United States than other countries. But if you look at spending growth in the Medicare program, that's split essentially between growing number of enrollees, and I mentioned that earlier, and volume and intensity utilization. Price growth in Medicare is actually projected to be below inflation, and so this ends up being important in how we think about policy for Medicare because we certainly aren't going to undertake policies that change the demographics of, you we want people on Medicare because people are going to age and we want them to age into Medicare. And so the question is, how do we manage Medicare per enrollee growth?
Michael Chernew:And that turns out not to be so much of a price issue. There are particular Medicare policy price issues that I think are important. We can talk about repricing different codes that might be overpriced. We can talk about site neutral payments, which is balancing payments between, say, physician offices and hospitals. But those are relatively small issues in the big picture of things.
Michael Chernew:I think the core thing to manage Medicare is to think about how we manage the volume and intensity growth in Medicare, which is projected to be higher than, say, price growth. And the mechanisms we put in place to do that are important. How we deal with the price growth in Medicare is important so the system can sustain that level of slow price growth in the Medicare program, and I think we really need to think through that and how to maintain efficiency. And the reason why Medicare matters, and Medicaid as well, is because all of this is done in the context of the American fiscal situation. So we don't have time, and honestly, I don't want to have a debate about the fiscal situation in the country, but I think it is fair to say that healthcare is an important part of that fiscal situation.
Michael Chernew:And it just becomes more imperative than ever to figure out how to deliver high quality healthcare efficiently. And that's pretty much of a cliche. I've probably been saying that for the past ten years, but every year I say this is the most important year. It really is highlighted this year. And you know what, Jeff?
Michael Chernew:It is really highlighted this year. We simply can't handle 8% growth overall, Medicare spending growth that much more rapid than GDP growth. That is just a real financing problem for the country, and so we really need to think about that. And the way we need to think about that is a little bit on price, but largely on the efficient delivery of health care services.
Jeff Byers:Yeah, don't debate them cowards. So it's interesting you bring up that. I had this question, I think your answer dovetails into this question quite nicely as we begin to wrap up. Just reflections on the phrase bending the cost curve and where healthcare sits today. You kinda alluded to some of your thoughts on this.
Jeff Byers:I've seen some recent arguments, I think from Lauren Adler, but don't quote him or me on that, that we may have actually made strides on bending the cost curve. As we've been discussing, one of the things I thought about is it's hard to get a primary care doctor appointment sometimes. Do we just gatekeep appointment times, and that's how we're bending the cost per curve by curbing utilization? Like, from a health econ standpoint, what are your reflections on this phrase?
Michael Chernew:So there's no doubt that, you know, relative to say the early two thousands, we have bent the cost curve. There's a well known New York Times piece that shows sort of what their projection was and what their trajectory was and what their trajectory actually played out to be. And there was a dramatic bending of the cost curve, which is a ton of money. And of course, I think the question is the way you framed that, Jeff, well, are we just gatekeeping primary care docs? I actually don't think that's true.
Michael Chernew:I think Okay. Well, I take that back. I do think there's a lot of problems with getting access to primary care. I don't think that's why health care spending growth has slowed. I think there were changes in think there were changes in the rate of introductions of new technologies.
Michael Chernew:We were moving things out of the hospital, which is less costly. We were some of the really expensive drugs were going off patent. There were a lot of different things in sort of the way in which we deliver healthcare that were changing that helped us bend the cost curve. But what I take away from this report is healthcare spending growth seems to be back. And if you look to this report, they're projecting in this report that health care spending, which in 2024, 2025 was very rapid relative to GDP, will slow down.
Michael Chernew:But still, by the end of this period, they're projecting roughly a one percentage point gap between health care spending growth and national income growth, GDP. And so essentially and again, we should take all forecasts with a grain of salt, but if you take this forecast for what it is, it is projecting that we're going to return to more cost growth. For a long time, healthcare spending stabilized in sort of the mid 17% of GDP. And this report shows you we're going from roughly, you know, mid 17% of GDP up to, as you mentioned at the beginning, 20 plus percent of GDP. So we're back on that upward trajectory.
Michael Chernew:So the core question that I think facing society is, has the cost curve this is a bad term, maybe you should have Lauren on, if indeed it was Lauren, he could speak more eloquently is it unbent? And what can we do to re bend it for some version of that? Should we just accept it because we're getting good stuff? Like, again, I think if we're getting good stuff, maybe we can tolerate more spending, but I'm a little skeptical that all of the higher spending is justified, and I think we need to redouble our efforts to try and keep ensuring that we're getting value for what we're spending, both in terms of paying a price that's justifiable and getting the value of services that we want given what we're spending.
Jeff Byers:Thanks for that. So maybe final question on that. You know, life is long. Health expenditures and projections take a while to see themselves through as far as, like, the data goes. So you're talking about this today.
Jeff Byers:We might not see the fruits of that unbending for, like, a couple of years now. Is there anything that we should be thinking about or doing in between that time as the, trend lines become clear?
Michael Chernew:First, let me say these projections, and this is a little bit technical, are done on what's called a current law basis, meaning they assume that health care policy stays the same, that the current law stays the same. So all the stuff that happens in sort of a policy basis can affect what happens here. But I think what we need to do, broadly speaking, is we need to think of the way in which we pay providers. I spend a lot of my time thinking about how we pay providers, how we regulate prices, how we regulate the general types of services to get introduced and the incentives that people face for using those sets of services. And those types of sort of small health policy decisions, and they're never small when you're doing them, but those types of individual policy decisions end up mattering a lot.
Michael Chernew:And how we think about supporting that type of innovation is going to matter. So there is a ton of work, and again, you mentioned on the pages of Health Affairs, about all of the debates about how we're going to manage, you know, again, we haven't talked a lot about Medicaid, but Medicaid is front and center. And so when one thinks about spending in places like Medicaid, one has to ask, are we getting the care that we want for the people that need that care and can we get that same care more efficiently? Can we make sure there's no fraud, waste, and abuse in ways that don't deny care to people who we really wanna get care? And these are all the sort of core questions that underlie this article.
Michael Chernew:Every year, this article gets a ton of attention because it provides you a really big macro view of where the health care system is going, but that macro view is made up of many, many, many subcomponents of activities. It's made up of the interplay of medical intervention, innovation and incentives, medical consolidation and prices, what we're doing in terms of supporting coverage or not in the country. All of those things matter. How we're enabling people to manage their health, how we're treating people's health in general, all those things matter. And so you have to hope that the underlying activities that are going on will help us at a minimum get more health for what we're spending and hopefully be able to lower spending and maintain sort of that improvement in health.
Jeff Byers:Fantastic. Good breakdown of that. Michael Chernew, as we wrap up, is there anything on the projections that we haven't gone over that you think would be important to note before we head out?
Michael Chernew:No, Jeff. I think this is a pretty comprehensive discussion. I will wait to see the response the replies that you get from the listeners. Oh my god. I cannot believe you did not talk about part b drugs or, you you really should have hit harder on what we're doing in this or that aspect of healthcare policy.
Michael Chernew:But from my point of view, this is pretty comprehensive and I always like talking to you.
Jeff Byers:For anyone that wants to sound off in the comments, Spotify has comments. We'd love to hear from you. Michael Chernew, thanks for joining us today on Health Affairs This Week. If you, the listener, enjoyed this episode, please share it with the health economists in your life, and we will see you we're off for two weeks, and then we'll see you in two weeks for a summer break. Bye.