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Health Affairs This Week places listeners at the center of health policy’s proverbial water cooler. Join host Jeff Byers, editors from Health Affairs Publishing, and guests as they discuss health policy’s most pressing news and trends.
Hello and welcome to Health Affairs This Week. I'm your host, Beyers. We are recording on 06/22/2026. As a quick programming note, this podcast will be taking a summer break in July. We will be back with new episodes beginning in August.
Jeff Byers:Thank you for listening, and we will see you when we return. But now, today, this week, Health Affairs released the latest national health expenditure projections. It's the latest in our continued partnership with CMS. And here to discuss these projections, we have Michael Chernew, a professor from Harvard Medical School. Michael, welcome back to the program.
Michael Chernew:Jeff, it is wonderful to speak with you again.
Jeff Byers:Thank you. Thank you. Always a pleasure to have you back, specifically on the projections and retrospective CMS reports. So the NHS projections state that health spending is set to reach 9,000,000,000,000 by 2034, which is about 20.6% of the economy. Inherent in these conversations when we speak together, you know, what is the import of this to someone that might be curious in the health economy but isn't a full fledged health wonk?
Michael Chernew:The CMS release of the National Health Expenditure Projections is sort of often anticipated for folks to get some sense of where healthcare spending is growing. The projections themselves are very aggregate. They do break them down by payer and by type of service, but it really is designed, I think, at the most important level to provide the readers with a sense of how much the country is likely to spend on healthcare going forward, assuming no major changes to current law. And it's important for a number of reasons. One of them is, and I would say most importantly, it helps policymakers understand what the fiscal burden of the healthcare system will be.
Michael Chernew:And so increasingly, as healthcare becomes a greater share of the economy, we're not just talking about healthcare. We're talking about taxes and fiscal policy in general. Getting a sense of what we're going to spend on healthcare going forward really helps policymakers understand what they have to do and the budget picture overall and a sense of what we're going have to borrow or tax in order to solve the problem or what policies are going to need to be put in place to make sure that the projections don't come to pass. And I should emphasize, these are projections assuming that policy stays the same, and one of their purposes is to alert policymakers as to what might happen without policy changes, and that information in and of itself may spur different types of policy changes. And so I think the most important thing is to understand that these numbers have important implications for fiscal policy, and of course, fiscal policy has important implications for the country overall.
Michael Chernew:I think the second thing that is important about this is for those in the private sector like myself, like you, this type of spending growth is going to be financed through the employer based system mostly. There's also the marketplace and stuff, mostly the employer based system. It speaks to the financial pressure that employers will be under. A lot of that has implications, for example, wage growth. So the faster healthcare spending grows, the slower wages grow, and so it's important to understand that as one anticipates the overall well-being of workers.
Michael Chernew:And then the third answer to that question is, and as we'll see from this report, when we see an anticipated increase in GDP from eighteen percent in 2024 to 20.6% in 2034, you have to understand that's going to motivate responses by policymakers and by employers. And I think for folks that are sort of watching casually, it's important to understand that the reason you see some of the responses, for better or worse, is because people, both public and private payers, are struggling with what to do with the underlying pressures facing the health care system just fiscally.
Jeff Byers:Yeah. Was gonna ask you, and we'll get into some of the areas that stood out to you, but, like, from a gut check, do you think employers and policymakers from this, you know, are they spooked by this potential projection or
Michael Chernew:Spook might be a little strong, but I would say for policymakers, it is concerning. And I think the number of reports that you read that start the American healthcare system spending is its return and the American healthcare system is placing an increasing burden on the population, on the economy. Therefore, we need some response. That's a very common intro to many types of papers. From the private sector, I don't think they would get spooked by a report like this because they're getting very similar reports from their benefit consultants or their actuaries.
Michael Chernew:So are they spooked by these numbers? Not necessarily, but are they spooked by the underlying trend that these numbers are reporting? Absolutely. I can say here at Harvard, we're facing close to double digit, a little more than double digit trends for a while, close to double digits in the next year. And I'm not sure I would say spooked is the right word, but it's very concerning if your revenue is rising at, I don't know, pick a number, 3%, 4%, 2%.
Michael Chernew:I have no idea what revenues are rising at, but they're not rising at 10% or 11% and that makes it a challenge for all payers, employers that we're talking about now, to figure out what they're going to do. And I think what they do, whatever the responses are, it will impact individuals because the one thing that's clear is everyone in the country is affected by the health care system, either because they need health care, they're using health care, or because they're paying for health care, or because the economy is affected by the government paying for health care. So it's really ubiquitous.
Jeff Byers:So maybe spooked, too too strong a word, maybe concerned, I think I heard in your response there, maybe more tempered. So what are some of the projections and areas that stood out to you?
Michael Chernew:So a few things that I think are important for the report. I'm going to name three. You can ask me about some others. So one of them is prices are important, but price growth is not the main driver of the projections. Maybe a third, and in fact, in the near term, it's really not prices at all for the 2025, 2026 period, prices in the health care sector are rising slower than general inflation.
Michael Chernew:It's projected to increase going forward, but most of what's driving spending growth is what is broadly known as volume and intensity. We can unpack that if we have time at the end, but it's essentially aspects of utilization that's driving spending, and that is important because the policy response to rising utilization requires us to think about the value associated with the healthcare that we're getting, are the things we're getting worth buying? I don't mean to dismiss the question about whether we're paying too much for those things. In many cases, we probably are, but in terms of this particular article, the projections of spending growth are largely driven by volume and intensity. Prices are a huge issue.
Michael Chernew:Consolidation in the healthcare system, which is driving up prices in the commercial sector, is a huge issue. You've probably done some podcasts on that topic, but in any case, the macro trend in prices is not the fundamental driver going forward. And I think that's important to remember that we need to think about volume growth and what's driving it. The second thing that stood out is the role of prescription drugs. That's in part retail prescription drugs, but if you read through the report, there's also drugs that are delivered to the medical benefit, so you might think of infused cancer drugs, for example.
Michael Chernew:These drugs are indeed expensive, and so there's a lot of policy discussed about the prices of those drugs, for example, but I think the key thing to understand is as we have all these new innovative drugs, we really need to understand how we're going to both manage their cost and manage making sure that the people who get those drugs are people that can really benefit from those drugs. But I think increasingly prescription drugs is going to be a central feature in all discussions of healthcare spending growth. The third thing that struck me from this report is the important role of policy. As I mentioned before, the report itself is what's called a current law projection, meaning the actuaries at CMS assume current law stays in force and they project what would happen. But what you'll see in this report is there's a number of things that matter that relate to policy that are driving these projections.
Michael Chernew:So one, for example, is there was really a dramatic increase in the use of skin substitutes, which is a treatment for people with wounds, and a lot of that was considered low value, in some cases potentially fraudulent, and CMS in 2020 put in a policy for 2026 to reduce the utilization of skin substitutes, and that sounds like a really small thing. It was big enough to make the report, And I think, by and large, broadly, hooray for CMS for trying to get on top of it. It's just there's a lot of things like that that go on. The second thing that matters, I think, in this report about policy is the role of the IRA, that's the Inflation Reduction Act, and a bunch of other drug related policies. And as I mentioned before, prescription drugs is a really important driver of spending growth.
Michael Chernew:It's a conundrum in some ways because those drugs offer a lot of value, but they cost a lot of money, and so the implementation of a lot of those IRA related drug policies is really important, and you can see that discussed in the report. A third thing about policy that's worth thinking about that comes up in the report is there's been some changes regarding coverage. So the enhanced premium tax subsidies from the ACA have expired, and so that policy will have ramifications for the number of people covered, which is mentioned in the report. It will decline. And, of course, if people don't have coverage, spending goes down, and so that's important.
Michael Chernew:I think going forward, there's work requirements in Medicaid, also mentioned because this is a ten year window in this report, so policy really does matter. Let me say one more thing and then a general comment about policy. As I mentioned, this is a current law projection, so it assumes that prices follow the current trajectory that prices are intended to follow, and in particularly physician fees, they're held very flat. And so the actual spending trajectory that we might expect might be a little bit faster than what we see in this report because I think it's going to be hard for ten years to hold physician fee growth at what physician fee growth is scheduled to be under current law. The other thing I will say about this and the report in general is when you ask questions about spending growth, and we're focusing now on a report that focuses on spending growth, the general view, in fact, implicit in your question about whether people got spooked, is this is a problem.
Michael Chernew:Spending growth is a problem. Oh my god, we're spending too much. But understand there are pros and cons in spending on healthcare. Some of these new drugs are really valuable. We can debate their prices, but they're really valuable drugs.
Michael Chernew:Some of the ways to save money, a lot of people would be concerned about. Think about the work requirements, which have been very controversial, or the premium subsidies, controversial. You can slow spending by policies which influence the number of people covered and the care that they get. Some of spending is good. Skin substitute spending, for example, was bad or at least excessive, and so it's very important when reading this report to understand that the value of the report is to give a sense of what we might spend, but understanding the value of that, what policies can lower spending without causing deleterious consequences, is actually the key policy thing that folks need to take from this.
Jeff Byers:Going back to volume and intensity and utilization. So inherently saying that, you know, the driving forces are volume and intensity. That's not inherently a bad statement, much like you said, spending isn't necessarily bad. So, like, what can we take away from what we know about the volume intensity trends in utilization? So, and is utilization back end or front just care services?
Jeff Byers:Like, you talk about that particular point, what do you mean?
Michael Chernew:So I think one of the challenges is when people talk about volume and intensity, they often talk about volume and intensity by sort of site of care, hospital admissions are up, outpatient facility spending is up, which is actually probably more of the case. We're using more drugs. I think in a policy perspective, the drill down is less about where the money's going hospitals, drugs, outpatient facilities, professional and more about what you're trying to accomplish clinically. And so it's hard to know when we see outpatient spending rising is that good or bad. It depends exactly what that is for, the same for drugs.
Michael Chernew:I think the other thing that gets caught up in volume and intensity is often things that we, broadly speaking, might consider not good. There's, for example, much more aggressive coding of services. A lot of the work I've done has been on the coding of disease in Medicare Advantage, but there's really been an uptick in the coding of services, more admissions with sepsis, more offices that's coded in the most complex category as opposed to the more moderate categories, more admissions with other types of comorbidities, for example, all of which get paid more. Now, it's, of course, conceivable that all of that is happening clinically, but I think it's probably likely that a significant amount of that is being driven by types of technologies, AI technologies, etcetera, that's enabling providers to more aggressively capture the codes for the services that they're delivering. I think there's some evidence that has come out that you see changes in coding without changes in actual treatment.
Michael Chernew:So that would fit in many cases under volume and intensity, but it's really not volume the way that we mean volume. It's not like we're getting more stuff, although just to be clear, there are people getting more, actually, more things. So there's a lot of nuance that underlies these trends and a lot of heterogeneity in the value that requires some level of unpacking and some level of policy response that's more than lead to slash spending. That's where I think we are, and I actually don't think we have a great sense clinically of what we're getting for spending. And I should say in the report, spending's been growing nationally at above 7% for the past several years.
Michael Chernew:That's pretty rapid spending growth, and we should be able to do a better job of answering the question, what did we get for that money that I think we currently are? And certainly this report doesn't even attempt to answer that, nor should it. It's not the job of the CMS actuaries to do that. But I think the research community, the policy community has to understand what are we really getting clinically for an extra 7% a year.
Jeff Byers:To that point, so going back to the healthcare economist's standpoint, you know, what are the areas of the industry are interesting to you as you look to the future?
Michael Chernew:I'm gonna give you an answer that's just so cliche I'm gonna be embarrassed later when I talk about it, which is I think fundamentally we're seeing a transformation in all industries related to artificial intelligence in these large language models and what can be done. And I think the core question will be, will these new technologies, which offer tremendous promise I would be lying if I didn't say I use some of these tools for myself just to understand clinically what's going on, what should I do, you know? And I think there's an immense value of these, both clinically and frankly administratively, to help us simplify some of the administrative burdens that are plaguing our healthcare system. On the other hand, as I mentioned earlier, a lot of these tools can be used to increase coding and drive up spending or create other types of service demand. So if there's, for example, an AI tool that enables you to better read an image, it prompts people to do more images, and so spending can go up.
Michael Chernew:And in our current system, I think our fee for service payment models are particularly ill suited to pay for some of these technologies for a whole bunch of reasons. So I think we're at the maybe not the beginning, but we're closer to the beginning than we are to the end of this sort of AI revolution and the economy writ large, healthcare in particular, and understanding if net net we can develop a system to channel all that potential to the things that we want and channel it away from the things that we might be concerned about, I think that's really going to be the challenge and something that I would like to spend a lot of time thinking through. So that's probably the biggest thing that I'm interested in going forward. I think some of the other things that we have to continue to watch is the role of consolidation and how it's influencing the healthcare system and how we build regulations around consolidation. I think we need to spend a lot of time pondering the workforce.
Michael Chernew:Some of that relates to AI, so a lot of AI is how's AI going to help with the workforce, but I think there's workforce issues beyond just AI that I think need attention going forward. Most healthcare spending is labor one way or another, and we need to understand how we can use labor more efficiently to provide better care for less. So that's where I think we're kind of going in the next several years, and I really think with a report like this, it just doubles down on the imperative that we succeed because a 7% trend, if you have a base of 5%, is a lot easier to deal with a 7% trend than if our base is pushing 20%. So let's hope. The projections do have some slowing going forward, but the key thing is we have to work to make that happen.
Michael Chernew:These aren't you know, these projections aren't set in stone. There's a lot of uncertainty around them. What really will happen is how the system evolves, and that depends on how policy and how other stakeholders react.
Jeff Byers:Well, Michael Chernew, thanks again for discussing the projections, the the National Health Expenditure Projections, which you can find on Health Affairs website currently, and it will be in the next month's issue. You were alluding to, Michael, a bombshell of an answer to this final question. Healthcare, is it one words or two to you?
Michael Chernew:Yeah. So first of all, I find the question wonderful because you should never ask an economist, certainly not me, any grammatical questions, particularly not coming from health affairs. Like, one of the things that health affairs is known for is sort of the strength of the editorial team, so they should not be taking advice from me. But I'll tell you, I wouldn't claim to be consistent, but in general, when I use healthcare as a noun, they're buying a lot of healthcare or I went to buy healthcare, I view that as two words, but when I'm using it as an adjective, the healthcare system, healthcare industry, I tend to use it as one word. So that's how I would like to do it.
Michael Chernew:We spend a lot on healthcare. I would typically say two words. The healthcare system's very expensive. I would typically use one word. And then I be completely inconsistent in my writing on that point, but hopefully the Health Affairs editors will correct me.
Jeff Byers:Well, thank you for weighing into this contentious debate. I appreciate it. Kind of going down the middle on that one, we'll take it and appreciate it. Again, Michael Chernew, thanks again for joining us today on Health Affairs This Week, and we will we will see you next time. If you, the listener, enjoyed this episode, send it to the grammaticists in your life.
Jeff Byers:I don't know if that's a word. I don't know if that's a word.
Michael Chernew:Ask them that as well.
Jeff Byers:Yeah. Yeah. We'll ask chat GPT if that's There
Michael Chernew:you go.
Jeff Byers:That's a word or not. Alright. Have a great one. See you in August.