Projected Health Expenditures to Rise Consistently Over the Next Decade, Outpacing GDP Growth

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WASHINGTON, D.C. — In a recent analysis by the Centers for Medicare & Medicaid Services’ (CMS) Office of the Actuary, projections were made concerning National Health Expenditures (NHE) and health insurance enrollment for 2023-2032. The findings suggest that we will see continued growth in health spending in the coming decade, outpacing the growth of the Gross Domestic Product (GDP).

Over the span of the next decade, the average annual growth in NHE is projected to be 5.6% – a figure significantly higher than the anticipated 4.3% GDP growth. The report also suggests a consistent rise in national health spending share of GDP, from 17.3% in 2022 to a steep 19.7% by 2032.

This increase is, in part, due to the Inflation Reduction Act of 2022 (IRA). The Act’s anticipated effects include the redesign of Medicare’s Part D drug benefit, negotiations on certain high-cost drugs under Medicare Parts B and D, and expected trends related to its temporary extension of enhanced subsidies for Marketplace plans.

While the NHE growth rate is somewhat lower in 2023-32 as compared to 2023, it still exceeds the GDP growth rate. This divergence points to a broad increase in the use of care facilitated by an insured share of the population at an unprecedented 93.1% in 2023. This high enrollment is attributed to record-high Medicaid enrollment and gains in direct-purchase insurance enrollment.

As we look to the future, projections for 2027-2032 indicate that personal health care price inflation and growth in the use of health care services and goods contribute to health spending growing at a faster rate (5.6%) than the rest of the economy (4.1%).

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On a closer examination of NHE, the average annual Medicare expenditure growth is projected to be 7.4% for 2023-2032. However, this is expected to slightly dip to 7.0% for 2030-2032. This drop is likely due to the slowing enrollment growth after the last of the baby boomers enroll in 2029.

Over that same decade, Medicaid’s spending growth is projected to average at 5.2%. This projection comes after many individuals were disenrolled in 2023 and 2024 when state eligibility redeterminations resumed following the expiration of the Families First Coronavirus Response Act’s continuous enrollment provisions.

Private health insurance spending is projected to grow by 5.6% on average over 2023-2032. However, enrollment numbers may decrease in 2026 when the enhanced subsidies from the Marketplace plans expire under the current law.

The growth rate for out-of-pocket spending is projected to average 4.7% during 2023-2032. This trend is largely driven by the implementation of the $2,000 cap on Part D covered Part D enrollee prescription drug out-of-pocket expenses and lower prices on drugs subject to the IRA’s negotiation provisions.

Projections for hospital spending growth indicate an average growth rate of 5.7% for 2023-2032. This trend is due to an expected rise in the use of hospital services for almost all payers by 2023.

Similarly, spending for physician and clinical services is projected to maintain a steady growth rate of 5.6% over the next decade. Retail prescription drug spending is also expected to grow at an average annual rate of 6.0%.

Overall, the analysis provided by CMS’ Office of the Actuary suggests a consistent and substantial rise in health expenditures in the United States over the next decade. This rise, outpacing the projected national GDP growth, is something that policymakers, healthcare providers, and consumers alike should pay keen attention to as it likely will have significant implications on healthcare accessibility, affordability, and service delivery methods.

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