CMS Projections Show Pandemic-Related Trends in Health Care Spending

Starting by looking at 1970 to the present and projecting health care spending through 2031, CMS actuaries have projected annual changes in health expenditures in 9 overall categories: per capita health spending; per capita prescription drug spending; out-of-pocket health spending; per enrollee health spending by payer; total spending on hospitals, physicians and clinics, and retail prescription drugs; per capita out-of-pocket health spending on hospitals, physicians and clinics, and retail prescription drugs; health spending as a percentage of the gross domestic product; US per capita health spending and alternative scenarios; and CMS projections of national health expenditures (trillions).

Their estimates show a different picture of health spending through 2031 compared with data from 2010 and 2015: $1.9 trillion less vs 2010 projections and $800 billion less vs 2015 projections.

Per Capita Health Spending

Noting the effects of the COVID-19 pandemic, the actuaries said this spend category will see a slight rebound from 2022 to 2031. The per-person spend is expected to jump to 4.8%, up from 2021’s 2.6% and the 3.9% average seen from 2014 through 2019. This still marks a slowdown from the height of the pandemic in 2020, which saw a 9.9% average yearly spend. Reasons for the rising costs are attributed to COVID-19–related categories, such as testing, treatment, missed/delayed cancer screenings, and vaccinations. However, recent inflation, telemedicine usage, and health sector employment trends mean these projections remain uncertain.

Per Capita Prescription Drug Spending

Noting a 7.7% spike in spending in this category in 2021 and wild fluctuations from the 1970s through 2020, the report authors say the increase comes from pandemic-related Medicaid prescription drug spending. Looking back at 2022, they add that a growth slowdown in Medicaid enrollment is responsible for the 4.7% per capita spend last year, a trend that is expected to continue through the end of this year with a 2.8% rate. Generic drugs entering the market and drug pricing negotiations through the Inflation Reduction Act (IRA) also are expected to have an impact on Medicare drug spend.

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Out-of-Pocket Health Spending

Following a rocky 2020, spending here saw a sharp increase in 2021, up 10.3% just from 2020. Per person, this equates to $1315 compared with $1192. The overall projected growth rates are expected to be 3.8% and 4.4% per capita in 2022 and 2023, respectively, and to stabilize over the next 7 years to an average 3.4%. Medicare part D coverage, as revised under the IRA, is expected to influence the moderate and stabilizing growth here vs total health spending.

Per-Enrollee Health Spending by Payer

Per-enrollee Medicaid spending is expected to rise in both 2023 and 2024, by 4.6% and 7.4%, respectively, for “the highest rate in 30 years,” the report authors noted. The primary reason behind this accelerated spend per person, and consequential overall spending drop, is plan disenrollment. CMS projects an enrollment reduction of 8.9% (8 million members) and a 2.1% spending drop ($834 to $817 billion) from 2023 to 2024, following which per-enrollee Medicaid spend is expected to even out at approximately 4.9%. For Medicare, higher hospital utilization rates are thought to be on the horizon this year, at 5.8%, after the 3.1% seen last year. Following a slight drop to 4.9% in 2024, projected spending is thought to stabilize through 2031.

Total Spending on Hospitals, Physicians and Clinics, and Retail Prescription Drugs

Rising labor costs indicate an overall 9.3% jump in hospital spending this year, with predicted annual growth for 2025 and beyond to be approximately 6.0% as pandemic-related use and spending wind down. Also in 2025, there will be a likely 5.7% uptick for physician and clinical services spend after the modest 2.4% growth predicted for 2022; potential restrictions on this growth include lower negotiated commercial insurer reimbursement rates and slower Medicare physician payment updates. The IRA is thought to have a negative impact on total prescription drug spending, with that growth total coming in at 5.1% for 2022 vs 7.8% the year before.

Per Capita Out-of-Pocket Health Spending on Hospitals, Physicians and Clinics, and Retail Prescription Drugs

CMS is predicting steady growth for physicians and clinics and hospitals through 2031, starting with 2021; prescription drug spend will ultimately see a slow rise through year-end, before taking a slight dip and leveling off by 2025. The top spend will be in hospital services, with its projected annual 4.9% growth through 2031, or $148 per capita vs the $103 seen in 2021. Next highest is the 3.9% annual rate seen for the same period for physician and clinical services, which equates to a jump from $199 to $284 per capita. There will be an average 1.1% decrease in out-of-pocket prescription drug spending, ultimately coming in at $139 per capita compared with a projected $157 for 2023.

Health Spending as a Percent of the Gross Domestic Product

By 2031, health care spending is expected to account for 19.6% of the gross domestic product, which is higher than the prepandemic level of 17.6% and the 18.3% seen in 2021, and nearly equal to the 19.7% peak seen in 2020 with pandemic-related health care expenditures. Overall, health spending will begin outpacing economic growth starting this year, in stark contrast to its slower growth vs the economy seen as recently as 2022.

US Per Capita Health Spending and Alternative Scenarios

Noting the impact that “volatile economic conditions” can have on health spending projections, CMS looked at this category of spend through the lens of 1% per capita increases and decreases. Growth is currently projected to be steady from 2022 to 2031, coming in at an overall 52.3% ($13,413 to $20,425), or 4.3% each year. Rates that are 1% higher mean an additional $2037 per person spend, while rates that are 1% lower mean a $1869 less spent per person.

CMS Projections of National Health Expenditures (Trillions)

Projections for national health spending in 2020 were handed down by CMS actuaries in 2010 and 2015, at $4.64 trillion and $4.20 trillion, respectively. Actual spending for 2020 was $4.12 trillion, which CMS partially attributes to a health expenditure growth slowdown, noting, “the national health expenditures grew at a larger annual average rate between 2000 and 2009 than they did between 2010 and 2019.” In addition, by 2025, health spending is expected to be $5.19 trillion, which is 7.8% less than the $5.63 trillion predicted in 2015. Again, a health care expenditure growth slowdown is to blame, along with the Medicare drug price negotiation allowed under the IRA.

Reference

McGough M, Salaga M, Cox C, Amin K. How much is health spending expected to grow? Peterson-KFF Health System Tracker. October 11, 2023. Accessed October 27, 2023. https://tinyurl.com/ynbwm2mt