Hospital spending is projected to increase by 9.3% this year

Healthcare spending projections for 2030 are now 21% below what the Centers for Medicare and Medicaid Services expected a decade ago, according to a study by Peterson Center on Healthcare and KFF.

Spending is lower than what CMS actuaries had projected. In 2010, they projected health spending would reach $4.64 trillion by 2020. In 2015, CMS actuaries projected estimated health spending in 2020 would be $4.20 trillion. 

However, by 2020, actual health spending was recorded at $4.12 trillion.

In 2015, health spending was projected to reach $5.63 trillion by 2025. However, latest projections now estimate health spending to be $5.19 trillion two years from now.

The difference in these estimations is partially due to a slowdown in health expenditure growth at the end of the 2010s, the report said. It is also likely due in part to the IRA’s provisions allowing Medicare to negotiate prices for certain high-cost drugs and linking drug price increases to the Consumer Price Index.

WHY THIS MATTERS

Hospital spending is projected to increase. 

In 2023, aggregate hospital spending is expected to increase by 9.3% due to a rebound in utilization and higher prices due to rising labor costs. 

Starting in 2025, hospital spending is expected to grow at an average annual rate of 6% as hospitals transition away from pandemic-related use and spending.

Across all payers, per enrollee spending is projected to accelerate in 2023 and 2024.

Among private insurance enrollees, spending growth is estimated to have slowed to 1.5% in 2022 as service use remained low in the third year of the pandemic. However, per enrollee private insurance spending growth is expected to accelerate in 2023 and 2024 at 6.8% annually as a result of growth in both use and prices.

Per enrollee Medicaid spending is expected to grow by 7.4% in 2024, the highest rate in 30 years. With Medicaid unwinding, younger and healthier Medicaid enrollees are more likely to be disenrolled, leading to higher per enrollee Medicaid spending, the report said. 

While per enrollee Medicaid spending is expected to grow, overall spending is expected to fall, due to disenrollments. 

From 2023 to 2024, CMS expects Medicaid enrollment to decline by 8.9% or 8 million and overall Medicaid spending to decrease by -2.1%.

CMS expects total spending on physician and clinical services to grow moderately by 2.4% in 2022 due to the end of federal COVID-19 relief programs. Beginning in 2025, growth in spending on physician and clinical services is expected to increase to an average of 5.7%. 

Despite upward pressures, slower Medicare physician payment updates and lower negotiated commercial insurer reimbursement rates under the No Surprises Act are expected to somewhat constrain growth.

Out-of-pocket spending per capita on hospitals and physician services is expected to continue increasing. 

However, authors of the report admit the pandemic, as well as increased telehealth use, can make projections difficult. Further, the recent broad-based inflation trends in the economy and health sector employment trends also add to the uncertainty of these projections.

Prescription drug spending growth is expected to fall below that of hospital and physician services.

Growth in prescription drug spending spiked in 2021 but is expected to fall to lower rates. Prescription drug spending grew 7.7% per capita from 2020 to 2021, driven by increases in the Medicaid prescription drug spend.

During the public health emergency, the federal government funded continuous enrollment for states to keep Medicaid beneficiaries covered. State redeterminations of Medicaid coverage began in April, which is decreasing the number of beneficiaries covered.

In 2022, slower Medicaid enrollment numbers were expected to have slowed growth to 4.7% per capita. 

This will lead to drug spending growth projected to slow to 2.8% per capita in 2023. 

Medicare prescription drug spending is also expected to slow as generic drugs enter the market for some drug categories and Inflation Reduction Act Medicare drug price reforms take effect, the report said.

THE LARGER TREND

Health spending is projected to account for nearly one-fifth of the U.S. economy by 2031, according to the report based on National Health Expenditure projections from federal actuaries.

In the years leading up to the pandemic, the share of gross domestic product  constituting healthcare hovered around 17.6%. 

In 2020, when health spending surged as the overall economy slowed, this share climbed to 19.7% of GDP.

In 2021, health expenditures as a share of GDP fell to 18.3% as health spending grew much slower than GDP. Health spending is estimated to have grown more slowly than the economy in 2022 and is estimated to have returned to pre-pandemic levels (17.4% of GDP). 

However, health spending growth is expected to outpace growth in the overall economy starting in 2023 and eventually hit 19.6% of GDP by 2031.

 

Twitter: @SusanJMorse
Email the writer: SMorse@himss.org