Health Care Spending on the Rise

Health Care Spending Projected to Surpass $7 Trillion by 2031

Estimates from the Centers for Medicare and Medicaid Services (CMS) project annual U.S. health care spending to reach approximately $7.2 trillion in 2031. In 2022, health care expenditures were expected to hit $4.4 trillion, growing at a rate of 4.3%. Economic growth outpaced health care growth in 2022, resulting in a decline of projected health care spending as a share of gross domestic product (GDP) from 18.3% in 2021 to 17.4% in 2022; however, from 2022 through 2031, U.S. health care spending is expected to grow on average 5.4% per year compared to a 4.6% increase in GDP over the same period. By 2031, health care is expected to account for 19.6% of the United States’ GDP.

“Altogether, and consistent with its past trend, health spending for the next 10 years is expected to grow more rapidly, on average, than the overall economy.”

– CMS Economist Sean Keehan

According to CMS’ projections, medical spending across all major sectors returned to pre-pandemic levels, with hospitals being the biggest cost driver in 2022. From 2022 through 2031, hospital spending is projected to increase faster (5.8%) than physician and clinical services (5.3%) and prescription drugs (4.6%). Additionally, the average price growth for hospitals (3.2%) is estimated to be higher than that of prescription drugs (2.2%) and physician and clinical services (2%). As a result, health care costs will likely become a larger part of American household spending. However, the Inflation Reduction Act is projected to lower out-of-pocket spending on prescription drugs for 2024 and beyond.

Changes to federal policies, together with the United States’ aging population, are anticipated to result in Medicare experiencing the highest rate of growth among major payers, increasing 7.5% annually from 2022 through 2031. Medicare spending is expected to increase from a rate of 4.8% in 2022 to 8% in 2023, with expenditures surpassing $1 trillion. Medicaid expenditures are forecast to grow 5% through 2031; however, enrollment in the program is expected to decline because of state determinations. Private health insurance spending is projected to grow 5.4% a year.

In 2022, the insured share of the U.S. population reached a record high of 92.3%, in large part due to gains in Medicaid and Health Insurance Marketplace plans, which benefited from pandemic-related relief including a moratorium on Medicaid redeterminations and expanded eligibility for subsidized premiums.

What This Means

The CMS’ report highlights how health care spending will increase over the next decade. Understanding how health care spending will increase can help employers act now to protect themselves against increasing health care costs and better support their employees.

Contact TIG Advisors for more health care resources.