Drug Spending Expected To Rise 6.8% In 2014 With ACA Coverage Expansion

Prescription drug spending across private and government insurance markets will top $290 billion in 2014, driven by the availability of broader coverage, the latest CMS National Health Expenditures report projects.

U.S. spending on prescription drugs is expected to increase 6.8% in 2014 compared to the previous year as millions more people gained coverage through private insurance and Medicaid under the Affordable Care Act, CMS actuaries predict in the agency’s annual National Health Expenditures Report, published on Health Affairs’ website Sept. 3.

Spending on drugs is projected to reach $290.7 billion in 2014, $18.6 billion higher than in 2013. “This is primarily a result of increases in the use of prescription drugs by the newly insured and by those who have switched to more generous insurance plans under the ACA’s coverage expansions,” the report says. CMS estimates 9 million individuals will have gained coverage in 2014 through the exchanges and Medicaid.

CMS has revised its drug spending growth prediction for 2014 upward since last year’s report, when it said it expected growth of 5%, and likely reflects better clarity on how the new and expanded markets are shaping up (Also see "Rx Spending Expected To Grow 5% In First Year of Expanded Health Coverage, CMS Predicts" - Pink Sheet, 18 Sep, 2013.).

The report says private plans obtained through state-based exchanges appear to be experiencing greater use of drugs in several therapy classes, including higher use of expensive specialty drugs. Express Scripts Holding Co. released a report in April observing that individuals covered by plans purchased through exchanges were using specialty drugs at a much higher rate than those in other commercial plans (Also see "Specialty Rx Use Higher In Exchanges Than Commercial Plans – Express Scripts" - Pink Sheet, 9 Apr, 2014.). Costly treatments for hepatitis C, such as Gilead Sciences Inc.’s Sovaldi (sofosbuvir), are also expected to lead to higher drug spending in both private insurance and government-sponsored health care programs in 2014.

U.S. drug expenditures are projected to keep growing at a 6.4% rate in 2015, as the uninsured continue to gain coverage through the exchanges and Medicaid. Spending on drugs is expected to reach a total of $309.3 billion in 2015 (see box). Growth will moderate somewhat in later years as enrollment growth in Medicaid and the exchanges slows following the major coverage transitions in 2014 and 2015, the report predicts. CMS estimates average annual drug spending growth of 5.4% during the 2016-2019 period and a rate of 6% in the 2020-2023 period.

The expected future growth figures are much more robust than those in recent years, such as 2012, which CMS has revised to 0.4%, or 2013, with a projected rate of 3.3%.

Rx Drug Spending Projections

• 2013: $272.1 billion, up 3.3%
• 2014: $290.7 billion, up 6.8%
• 2015: $309.3 billion, up 6.4%
• 2019: $381.8 billion, up 5.4%
• 2023: $482.8 billion, up 6.0%

Source: CMS National Health Expenditures Report

The report explains spending during 2020 to 2023 is expected to increase faster than during the previous three-year period due to higher disposable personal income, “changing guidelines that encourage physicians to introduce drug therapies at earlier stages of treatment” and specialty drugs.

CMS actuary Sean Keehan said during a Sept. 3 press call that increased drug spending resulting from changing practice guidelines was “universally” cited by drug industry experts consulted by the report authors. However, he did not specify the categories of drugs that might be impacted. One example of revised practice guidelines that are likely to boost drug use is the cholesterol treatment guidance released in late 2013 by the America Heart Association and American College of Cardiology (Also see "Time, And Price, Are Right To Prescribe Statins To the Masses" - Pink Sheet, 2 Dec, 2013.).

The NHE report observes that ACA-driven coverage expansion will drive a shift in health care financing from individual households to the federal government.

Because of ACA’s 100% initial federal matching rate for Medicaid spending incurred by newly eligible enrollees and the availability of premium and cost-sharing subsidies for exchange coverage, health care spending by the federal government is projected to increase 14.7% in 2014, and its share of overall health care spending will grow from 26% in 2013 to 28% in 2014. By 2023, federal, state, and local government financing is projected to account for 48% of national health expenditures, up from 44% in 2012, and to reach a total of $2.5 trillion.