CMS Predicts the Future: National Healthcare Spending to Exceed 2023 U.S. Economy

If I were to ask you what affects healthcare spending, I’d likely get about as many answers as we have readers. Some might say advancing technology, a workforce shortage, prescription drug prices, an aging population…the factors are endless.

But it’s the job of the Centers for Medicare & Medicaid Services (CMS) to officially project future spending on health, and last week, the agency’s Office of the Actuary published their official report on national health expenditure projections through 2032. Let’s take a look at some of the factors CMS saw when they asked themselves this very question.

The highlight you may have seen from this report is this: national health spending is projected to outpace the rest of the country’s overall economy in 2023, with a 7.5-percent growth in expenditures. This was due to a sharp increase in utilization of healthcare following the slowdown during the COVID-19 pandemic. In fact, hospital spending was reported to have jumped from a 2-percent increase in 2022 to a 10-percent increase in 2023. Spending on physician and clinical services saw a similar, though slightly less pronounced, jump during the year as well. Medicaid enrollment was high from the lack of disenrollments over the previous years, and enrollment in private health insurance grew because of subsidies and the temporary special enrollment period. The pandemic might have been in our rearview mirrors, but its impact was still palpable in the industry.

This year, things are slowing just a bit. Growth rates for health expenditures will likely be impacted by declining Medicaid spending from state eligibility redeterminations, as well as decreased utilization of healthcare services overall as we get further from the pandemic and habits return closer to normal.

Growth in personal healthcare prices, however, is expected to outpace economywide price growth. Frequent readers may remember me reporting on how healthcare price increases can lag behind other economic markers due to prices being set in advance; well, the sand in the hourglass has run out! Inflation is hitting the industry hard, and the data shows continued growth here.

But the report also highlights expected trends in healthcare expenditures throughout the next decade. So, what’s in store for the future?

First up, Medicare is expected to have the highest spending growth rate of all major payers, as baby boomers continue to enroll through the end of 2029. Private health insurance spending should even out to longer-term averages, but that too is partially due to baby boomers aging into Medicare coverage instead.

In fact, CMS expects an inverse relationship between private health insurance spending growth and Medicare spending growth: as private insurance spending falls from fewer Marketplace enrollments, Medicare spending growth increases due to federal regulations and an increase in enrollments.

Second, hospital spending growth is expected to slow to an average of about 5 percent: not the highest we’ve seen, but not the lowest either. This is about on par with what CMS projects private health insurance’s and Medicaid’s spending growth rates to be.

Third and finally, by the end of the next 10 years, CMS expects health expenditures to have risen to $7.7 trillion – and government healthcare sponsors will account for half of that number. To put that into perspective, the U.S. currently spends just short of one trillion on defense annually.

The report leaves us with the projection that healthcare expenditures will eventually account for one-fifth of the U.S. economy. Now, several sources point out that CMS has been wrong before and could be wrong again; they certainly couldn’t have accounted for the pandemic in previous projections, for example.

I guess you’ll just have to meet me back here in 2032 to find out!