Health spending over the next decade is expected to grow more rapidly than the overall economy — consistent with past trends — though spending patterns will be greatly influenced by the end of the COVID-19 public health emergency, according to new estimates released Wednesday by government actuaries.
By 2031, about $1 of every $5 spent in the U.S. will be on healthcare.
However, 2022 was an outlier, as economic growth outpaced the increase in health spending. Health spending growth stabilized after increases in public health expenditures during the pandemic, and economywide prices grew at a 40-year high during rapidly rising inflation, the CMS Office of the Actuary found in its annual spending report.
As a result, health expenditures’s share of the gross domestic product fell from 18.3% in 2021 to 17.4% in 2022.
Overall, the U.S. spent $4.4 trillion on healthcare last year, according to the CMS.
Looking forward, health spending is expected to grow 5.4% per year on average between 2022 and 2031, once again outpacing GDP growth to hit 19.6% of the nation’s overall economy by 2031.
National health spending is projected to reach $7.2 trillion that year.
The nation's healthcare spending will outpace inflation to reach new heights over the next decade
Medicare spend to grow fastest
The unwinding of the COVID-19 public health emergency and recent health-related legislation are expected to significantly impact health spending across the country’s major payers, along with insurance enrollment trends, according to the CMS.
The expiration of the PHE is expected to result in millions of Americans being kicked off Medicaid as states resume eligibility checks for the safety-net program. That should increase coverage in private health insurance through 2025 due to more generous federal subsidies in the Affordable Care Act exchanges, authors said. Meanwhile, providers will lose Medicare add-on payments for COVID-19-related admissions.
The Inflation Reduction Act of 2022, which enacted significant changes to Medicare’s prescription drug benefit, is expected to have a “minor, but noteworthy” influence on Medicare spending trends, by initially raising than lowering growth rates, according to the report.
Among all the payers, Medicare spending is expected to grow the fastest over the next decade, at an average of 7.5% per year. That’s compared to 5.4% average annual growth for private health insurance, and 5% for Medicaid, the CMS found.
Drivers of growing Medicare spend include an expected increase in hospital volume and intensity growth, and an increase in enrollees, as more baby boomers age into Medicare. The growing number of beneficiaries in Medicare is a major stressor affecting the program’s long-term solvency, according to government reports — currently, Medicare’s hospital trust fund is expected to run out of money by 2031.
The CMS projects the IRA will lower out-of-pocket spending on prescription drugs starting next year, due to provisions like the $2,000 annual out-of-pocket spending cap and government negotiations with drugmakers.
However, Part D redesigns from the legislation are expected to increase Medicare prescription drug spending, as the program covers expenses that were previously paid out of pocket, in 2024 and 2025.
Beyond that, the negotiation and inflation rebate provisions should work together to lower spending, according to researchers, but it’s hard to know exactly how much.
“With the negotiations and the inflation rebates, that does lead to savings for the Medicare program but as far as something to quantify what those savings are … we don’t have a specific number,” said Sean Keehan, a senior economist in the CMS Office of the Actuary, during a media briefing Wednesday.
Insurance trends, hospital spend
The U.S. insured rate reached a historic high in 2022 at 92.3%. However, that’s likely to dip as the expiration of the PHE, and subsequent Medicaid eligibility checks, lowers the number of Americans enrolled in Medicaid from 90.4 million in 2022 to 81.1 million in 2025, the CMS said.
As of Thursday, at least 1.15 million Medicaid enrollees have been disenrolled from Medicaid, according to a KFF tracker.
Due to declining enrollment amid redeterminations, Medicaid spending growth should slow starting this year, researchers said. However, state Medicaid funding will spike starting in 2024, as higher federal match rates during COVID expire.
The nation’s insured rate should remain above 90% over the next decade as many people booted off Medicaid enroll in Affordable Care Act exchanges, helped made possible by more generous federal subsidies, according to the report.
As for providers, hospital spending is expected to grow more quickly on average over the next decade than for both physician and clinical services and prescription drugs, at 5.8%, compared to 5.3% and 4.6% respectively. Average price growth for hospitals, at 3.2%, is projected to outpace that of prescription drugs, at 2.2%, and physician and clinical services, at 2%.
“We do anticipate in 2023 that [hospital] utilization will bounce back significantly,” said John Poisal, deputy director of CMS’ National Health Statistics Group, followed by “somewhat slower growth until we get through the 2025 through 2029 part of the forecast, where growth is relatively elevated.”
