Forecasts and Drivers of Health Expenditure Growth in California

California’s state government, employers and households are concerned about the future affordability of healthcare. We use health expenditure data from the Centers for Medicare & Medicaid Services’ Office of the Actuary to forecast California’s health expenditures from 2013 to 2022 and identify factors driving expenditure increases. Real health expenditures per capita (2013$) are forecasted to increase from $8,398 to $11,421 (or 36%), resulting in health expenditures increasing from 14.5% to 16.0% of California’s economy. Expenditure increases are mostly driven by gains in real income per capita (40-60%), followed by medical-specific inflation (23%), an aging population (14%), and insurance coverage gains (8%). The -4% to 16% residual is attributable to changes in the volume and mix of services and technology. Several innovations could potentially dampen these increases, such as shared-risk, value-based payment models, practice redesign initiatives, lower cost settings and healthcare professionals, many of which are found in accountable care organizations.