USA —According to new estimates released by government actuaries, health spending is projected to grow more rapidly than the overall economy over the next decade, with significant influences from the conclusion of the COVID-19 public health emergency.
By 2031, approximately one-fifth of total expenditure in the United States is expected to be allocated to healthcare, as reported by health news agency Healthcare Dive.
In 2022, health spending deviated from the norm as economic growth surpassed the increase in healthcare expenditures.
The CMS Office of the Actuary’s annual spending report revealed that health spending growth stabilized after a surge in public health outlays during the pandemic, while the nation experienced a 40-year high in economywide prices due to inflation.
Consequently, the share of gross domestic product devoted to healthcare decreased from 18.3% in 2021 to 17.4% in 2022. The CMS reported that the U.S. spent a total of US$4.4 trillion on healthcare last year.
Looking ahead, health spending is projected to increase by an average of 5.4% annually between 2022 and 2031, once again outpacing GDP growth.
By 2031, healthcare expenses are estimated to account for 19.6% of the nation’s overall economy, reaching a projected US$7.2 trillion in spending.
Medicare is expected to experience the fastest growth among all payers over the next decade, with an average annual increase of 7.5%. Private health insurance follows with an average growth rate of 5.4%, while Medicaid is projected to grow at 5%.
The CMS attributes this growth to factors such as an anticipated rise in hospital volume and intensity, an increase in Medicare enrollees as the baby boomer generation ages into the program, and the ongoing challenge of the program’s long-term solvency.
Various factors, including the expiration of the COVID-19 public health emergency and recent health-related legislation, are expected to significantly impact health spending across major payers in the country, as well as influence insurance enrollment trends.
The end of the public health emergency is predicted to result in Medicaid eligibility checks resuming, potentially leading to millions of Americans being removed from the program.
Conversely, private health insurance coverage is expected to increase through 2025 due to more generous federal subsidies in Affordable Care Act exchanges. Medicare providers will lose add-on payments for COVID-19-related admissions.
The Inflation Reduction Act of 2022, which brought significant changes to Medicare’s prescription drug benefit, is expected to have a notable impact on Medicare spending trends.
The report indicates that initial growth rates may be raised and subsequently lowered due to the legislation.
Although the report suggests that the IRA will decrease out-of-pocket spending on prescription drugs from next year onward, the redesign of Part D coverage is expected to increase Medicare prescription drug spending in 2024 and 2025.
The provisions related to negotiation and inflation rebates are expected to collaborate in reducing spending; however, the exact magnitude of these savings remains uncertain.
Sean Keehan, a senior economist in the CMS Office of the Actuary, stated during a media briefing that quantifying the specific savings resulting from negotiations and inflation rebates is challenging.
Insurance trends and hospital spending projections
In 2022, the United States achieved a historic high in insured rates, reaching 92.3%.
However, this rate is expected to decline as the expiration of the Public Health Emergency (PHE) leads to Medicaid eligibility checks, resulting in a decrease in the number of Americans enrolled in Medicaid from 90.4 million in 2022 to 81.1 million in 2025, as reported by the CMS.
According to a tracker by KFF, at least 1.15 million Medicaid enrollees have already been disenrolled due to redeterminations.
As a result, Medicaid spending growth is anticipated to slow down starting this year. However, state Medicaid funding is predicted to increase from 2024 onward as the higher federal match rates provided during the COVID-19 pandemic expire.
The report suggests that the nation’s insured rate will remain above 90% over the next decade, as individuals who lose Medicaid coverage are expected to enroll in Affordable Care Act exchanges. This transition is facilitated by more generous federal subsidies.
Turning to provider perspectives, hospital spending is projected to experience faster average growth over the next decade compared to spending on physician and clinical services and prescription drugs.
Hospital spending is estimated to grow at a rate of 5.8%, while physician and clinical services are projected to grow at 5.3%, and prescription drugs at 4.6%.
Average price growth for hospitals is expected to surpass that of prescription drugs and physician and clinical services, with rates of 3.2%, 2.2%, and 2%, respectively.
John Poisal, the deputy director of CMS’ National Health Statistics Group, stated, “We do anticipate in 2023 that [hospital] utilization will bounce back significantly,” followed by an expectation of “somewhat slower growth until we get through the 2025 through 2029 part of the forecast, where growth is relatively elevated.”
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