CMS Releases Health Expenditure Projections for Next Decade

CMS Releases Health Expenditure Projections for Next Decade

Average annual growth in national health spending over the next decade is projected to be 5.6 percent, outpacing projected overall GDP.

The developed nation that spends far more on healthcare per capita than any other, worldwide, is about to spend even more.

That was the key takeaway from the Centers for Medicare & Medicaid Services (CMS) Office of the Actuary’s projections of National Health Expenditures (NHE) and health insurance enrollment for 2023-2032.

Specifically, the Office said in an announcement last week, average annual growth in NHE is expected to be 5.6 percent, outpacing average annual growth in gross domestic product (GDP) (4.3 percent), resulting in an increase in the health spending share of GDP from 17.3 percent in 2022 to 19.7 percent in 2032.

Officials noted that the estimates reflect anticipated effects from the Inflation Reduction Act of 2022 (IRA), including:

  • Effects associated with the law’s provisions regarding the redesign of Medicare’s Part D drug benefit;
  • Negotiations on certain high-cost drugs under Medicare Parts B and D; and

  • Expected enrollment and spending trends related to its temporary extension of enhanced subsidies for Marketplace plans.

“NHE growth is projected to average 5.6 percent over 2023-32. This is lower than in 2023, when NHE growth was projected to have been 7.5 percent, faster than GDP growth of 6.1 percent, reflecting broad increases in the use of care associated with an insured share of the population of 93.1 percent (an unprecedented high),” a press release issued by CMS read. “The high enrollment share in 2023 was related to record-high Medicaid enrollment and gains in direct-purchase insurance enrollment. Healthcare price growth remained modest during 2023 at 2.5 percent (as measured by the Personal Health Care Price Deflator). However, it was faster than the period immediately prior to the COVID-19 Public Health Emergency (PHE).”

The Peterson-KFF (Kaiser Family Foundation) Health System Tracker reported that American health expenditures per capita in 2022 were measured at just over $12,500 – a figure dwarfing that of the second-highest spending developed nation (Switzerland, at slightly over $8,000) and nearly two and a half times the rate of Japan ($5,250).

It wasn’t always that way – in 1970, for example, the U.S. spent 6.2 percent of its GDP on healthcare.

The rest of the nation’s economy is expected to grow at a rate of slightly more than 4 percent over the next decade.

Officials further broke down the projected expenditure increases by major payors:

  • Average annual Medicare expenditure growth is projected to be 7.4 percent for 2023-2032. Over that period, Medicare spending growth is expected to be somewhat lower (7.0 percent), reflecting projected slowing enrollment growth after the last of the baby boomers (those born between 1946 and 1964) enroll in 2029; 
  • The average rate of growth for Medicaid spending is projected to be 5.2 percent. Officials noted that state eligibility redeterminations resumed in 2023 following the expiration of the Families First Coronavirus Response Act’s continuous enrollment provisions, and many individuals were disenrolled in 2023 (and more in 2024) as a result. After 2024, Medicaid enrollment is expected to stabilize as eligibility processes return to normal;
  • The average rate of growth for private health insurance spending is projected to be 5.6 percent. Enrollment gains in direct-purchase plans are expected through 2025 related to the temporary extension of enhanced Marketplace subsidies and the Special Enrollment Period. Enrollment is projected to fall in 2026, when the enhanced subsidies expire under current law; and
  • The growth rate for out-of-pocket spending is projected to average 4.7 percent during 2023-2032, impacted in part by the implementation of the $2,000 cap on covered Part D enrollee prescription drug out-of-pocket expenses and lower gross prices on drugs subject to the IRA’s negotiation provisions that serve to lower out-of-pocket payments for people with Medicare prescription drug coverage.

CMS also noted that average annual growth in retail prescription drug spending of 6 percent is expected over the next decade.

“In 2025, Medicare spending growth on drugs slows (as the program incurs savings from manufacturer discounts that are partially offset by higher costs from the $2,000 cap on Part D out-of-pocket spending), followed by higher projected growth in 2026 from expected reductions in rebates on drugs with negotiated prices,” the agency’s press release read. “For 2027-32, Medicare prescription drug spending growth is pushed lower by the IRA’s negotiation and inflation rebate provisions. The impact of new drug introductions, particularly for oncology, immunology, and diabetes, is expected to put upward pressure on growth across all payors.”

The Office of the Actuary’s 2023-2032 projections will be published online to the CMS website.

A Health Affairs journal article from CMS’s Office of the Actuary is available here: https://www.healthaffairs.org/doi/10.1377/hlthaff.2024.00469

To view the Health Affairs’ study on these projections, go to: https://www.healthaffairs.org/doi/full/10.1377/hlthaff.2024.00469

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Mark Spivey

Mark Spivey is a national correspondent for RACmonitor.com, ICD10monitor.com, and Auditor Monitor who has been writing and editing material about the federal oversight of American healthcare for more than a decade.

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