Dive Brief:
- A record number of Americans with healthcare coverage — and their increased use of medical services — is expected to spur U.S. health spending to $4.8 trillion in 2023, according to new government projections.
- Last year’s projected healthcare spending growth of 7.5% outpaces larger economic growth for the first time since the coronavirus pandemic began in 2020, according to the CMS Office of the Actuary’s annual health spending report released Wednesday. As a result, health spending swelled to an even larger share of the nation’s gross domestic product.
- Inflation is expected to continue driving up the cost of things necessary to provide healthcare services, especially labor. That price growth, in tandem with an aging U.S. population creating more demand for medical care, should cause health spending to snowball from 17.6% of the GDP last year to 19.7% by 2032, according to the report.
Dive Insight:
During the coronavirus pandemic, lawmakers and regulators in Washington poured taxpayer dollars into policies that increased the number of Americans with insurance coverage, driving the U.S. insured rate to a historic high of 93.1% last year, according to the report. People used more healthcare as a result, boosting national health spending.
Though most of those programs have wound down, the U.S. is still experiencing ripple effects from the influx of financing — especially how it reshaped insurance coverage.
In Medicaid, states couldn’t remove enrollees from the safety-net program during the pandemic, causing the program to swell. Similarly, the government issued more generous financial subsidies for Affordable Care Act plans to ensure more people could afford coverage during COVID-19.
The Medicaid policies have expired — states have removed some 22.8 million individuals from the coverage since last spring — but the ACA assistance is slated to continue through 2025. In the near-term, more Americans will shift to private health insurance, as a result of those higher subsidies (and a temporary ACA special enrollment period for people who lose Medicaid).
But over the long-term, attrition from the insurance programs is expected to erase pandemic-era gains in coverage, shrinking the insured rate to 90.7% by 2032, according to CMS actuaries.
As Medicaid enrollment falls, that should significantly lower spending in the program and put the brakes on healthcare spending growth overall. The CMS expects health spending growth to slow to 5.2% this year.
Interestingly, though enrollment and spend will decrease, Medicaid’s rapid loss of younger and healthier enrollees (who are less likely to survive an eligibility recheck) should result in per-enrollee spending growth this year that’s the highest since 1991, according to the report.
During redeterminations, health insurers that contract with states to administer the care of Medicaid members have hounded regulators for higher Medicaid payments, to make up for the loss of these less expensive enrollees.
Yet as Medicaid spending falls overall, spending from other major payment sources is expected to accelerate for 2024, including private health insurance and out-of-pocket costs on consumers.
However, none are expected to grow as quickly over the next decade as Medicare.
Spending in the senior insurance program is expected to balloon from 2025 to 2032 as more baby boomers age into Medicare. Sharp enrollment growth is a concern for program watchdogs due to the existing financial stress on the program. Currently, a key trust fund that underpins Medicare’s hospital benefit is expected to run dry by 2036.
As for what these funds are being spent on, spending on hospital services especially spiked last year. Hospital spending grew a projected 10.1% in 2023, substantially higher than the 2.2% lodged in 2022.
Hospital spending growth spiked last year as patients resumed medical services in droves
That was mostly due to increasing utilization coming out of the pandemic, not because of price growth itself, according to CMS actuary Andrew Madison, who noted spending on physician and clinical services also increased above the recent norm.
“We largely attribute it to returning practice patterns post PHE,” Madison said during a Health Affairs webinar Wednesday discussing the report.
Hospitals and insurers alike have recently reported patients are returning for medical care, reversing the cessation in healthcare utilization during the pandemic. The trend has hammered insurers’ bottom lines by forcing them to shell out a higher percentage of premiums on medical care, even as it’s benefited hospitals and other providers.
However, the higher utilization — along with other pandemic effects — will ease soon, actuaries noted.
“As time passes, the COVID-19 pandemic and associated temporary spending and enrollment effects are expected to retreat, and health spending and enrollment patterns are expected to resemble their longer-term trends more closely and to be driven to a greater extent by traditional economic and demographic factors,” the report concludes.
