BREAKING: CMS Actuaries: U.S. Healthcare Spending to Reach $7.2 Trillion by 2031

June 14, 2023
Announcing their annual report with projections, CMS actuaries predict that total U.S. Healthcare Spending Will Reach $7.2 Trillion by 2031 and consume 19.6 percent of GDP

The actuaries at the Centers for Medicare and Medicaid Services (CMS) on Wednesday, June 14 released their projections for overall U.S. national healthcare spending for the next several years, finding that total national health spending will reach $7.2 trillion by 2031 and grow from the 18.3 percent of gross domestic product (GDP) that it was in 2018, to 19.6 percent by 2031. That $7.2-trillion figure would represent a staggering 63.64-percent increase in expenditures over the actuaries’ 2022 estimate shared on Wednesday.

The news was reported both on the CMS website and in an online article in advance of print publication, in Health Affairs.

The Health Affairs article on the projections began thus: “New estimates released today from the Office of the Actuary (OACT) at the Centers for Medicare & Medicaid Services (CMS) and published online today in Health Affairs project a rate of national health spending growth of 4.3 percent for 2022, with expenditures projected to have reached $4.4 trillion. Health spending over the course of 2022-31 is expected to grow 5.4 percent per year on average.”

And the CMS press release began thus: “The Centers for Medicare & Medicaid Services’ (CMS) Office of the Actuary released projections of National Health Expenditures (NHE) and health insurance enrollment for the years 2022-2031. The report contains expected impacts from the Inflation Reduction Act (IRA), including that people with Medicare prescription drug coverage (Part D) are projected to experience lower out-of-pocket spending on prescription drugs for 2024 and beyond as several provisions from the law begin to take effect.”

Per that, the CMS press release stated, “CMS projects that over 2022-2031, average annual growth in NHE (5.4 percent) will outpace average annual growth in gross domestic product (GDP) (4.6 percent), resulting in an increase in the health spending share of GDP from 18.3 percent in 2021 to 19.6 percent in 2031. The insured percentage of the population is projected to have reached a historic high of 92.3 percent in 2022 (due to high Medicaid enrollment and gains in Marketplace coverage). It is expected to remain at that rate through 2023. Given the expiration of the Medicaid continuous enrollment condition on March 31, 2023 and the resumption of Medicaid redeterminations, Medicaid enrollment is projected to fall over 2023-2025, most notably in 2024, with an expected net loss in enrollment of 8 million beneficiaries. If current law provisions in the Affordable Care Act are allowed to expire at the end of 2025, the insured share of the population is projected to be 91.2 percent.  In 2031, the insured share of the population is projected to be 90.5%, similar to pre-pandemic levels.”

As the press release explained it, “The NHE is published annually and is often referred to as the ‘official’ estimates of U.S. health spending and health insurance enrollment. The historical and projected estimates of NHE measure total annual U.S. spending for the delivery of health care goods and services by type of good or service (hospital, physician, prescription drugs, etc.) and by payer (private health insurance (PHI), Medicare, Medicaid, etc.).”

Selected highlights from the press release include the following:

Inflation Reduction Act (IRA) on Medicare Part D Enrollees: Several provisions from the IRA are expected to result in out-of-pocket savings for individuals enrolled in Medicare Part D.  Those include: i) limitations on price increases for Part D drugs beginning in 2023, ii) elimination of the cost-sharing requirement in the Part D catastrophic phase (typically 5% beneficiary coinsurance) starting in 2024, iii) implementation of a $2,000 annual cap on out-of-pocket spending on drugs under Part D beginning in 2025, and iv) reduced prices for certain high-cost drugs through negotiation resulting in lower out-of-pocket payments beginning in 2026. These provisions have notable effects on the growth rates for total out-of-pocket spending for prescription drugs, which are projected to decline by 5.9% in 2024, 4.2% in 2025, and 0.2% in 2026.

Medicare: Average annual expenditure growth of 7.5% is projected for Medicare over 2022-2031. In 2022, the combination of fee-for-service beneficiaries utilizing emergent hospital care at lower rates and the reinstatement of payment rate cuts associated with the Medicare Sequester Relief Act of 2022 resulted in slower Medicare spending growth of 4.8% (down from 8.4% in 2021). In 2025, Medicare spending is projected to grow 8.9%, reflecting the effect of the IRA’s cap ($2,000 in 2025) on out-of-pocket spending for Part D enrollees and the associated shift in responsibility for those payments that exceed the cap from the beneficiaries to the program. Projected Medicare spending growth slows to 6.8% in 2030 and 2031, associated with the IRA’s provisions related to drug price negotiations and inflation rebates, as well as slower enrollment growth as the last of the demographic cohort known as the baby boomer generation (those born between 1946-1964) enrolls in 2029. 

Medicaid:  On average, over 2022-2031, Medicaid expenditures are projected to grow by 5.0%.  With the end of the continuous enrollment condition in 2023, Medicaid enrollment is projected to decline over 2023-2025, with most of the net loss in enrollment (8 million) occurring in 2024 as states resume annual Medicaid redeterminations. Medicaid enrollment is expected to increase and average less than 1% through 2031, with average expenditure growth of 5.6% over 2025-2031. 

Private Health Insurance: Over 2022-2031, private health insurance spending growth is projected to average 5.4%. Despite faster growth in private health insurance enrollment in 2022 (led by increases in Marketplace enrollment related to the American Rescue Plan Act’s subsidies), private health insurance expenditures are expected to have risen 3.0% (compared to 5.8% in 2021) due to lower utilization growth, especially for hospital services. Faster projected growth in utilization and health care prices in 2023 leads to a 7.7% increase in private health insurance spending. In 2026, private health insurance spending is expected to be impacted by the expiration of enhanced subsidies for Marketplace plans and the associated 10% decline for those enrolled in directly-purchased insurance that year.   

Selected highlights in NHE for the three largest goods and services categories include:

Overview of Hospital Trends: Over 2022-2031, hospital spending growth is expected to average 5.8% annually. In 2022, hospital spending is projected to have increased 0.8%, reflecting declines in PHI and out-of-pocket spending and low growth for Medicare, as growth in the use of hospital services slowed from higher rates in 2021. In 2023, faster growth in hospital utilization rates and accelerating growth in hospital prices (related to economywide inflation and rising labor costs) are expected to lead to faster hospital spending growth of 9.3%.  For 2025-2031, hospital spending trends are expected to normalize (with projected average annual growth of 6.1%) as there is a transition away from pandemic public health emergency funding impacts on spending.

Overview of Physician and Clinical Services Trends: Growth in physician and clinical services spending is projected to average 5.3% over 2022-2031. An expected deceleration in growth in 2022, to 2.4% from 5.6% in 2021, reflects slowing growth in the use of services following the pandemic-driven rebound in use in 2021. For 2025-2031, average spending growth for physician and clinical services is projected to be 5.7%, with an expectation that average Medicare spending growth (8.1%) for these services will exceed that of average Private Health Insurance growth (4.6%) partly as a result of comparatively faster growth in Medicare enrollment.

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