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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.

Forecasts and Drivers of Health Expenditure Growth in California