Health Spending to Outpace U.S. Economic Growth

The cost of health care in the United States will grow more than the annual increase in the nation's gross domestic product (GDP) over the next decade, even as Medicare enrollees should start seeing savings as the provisions of the new prescription drug law begin to take effect, according to a health spending report from the Centers for Medicare & Medicaid Services (CMS).

The annual report projects that from 2022 to 2031, total U.S. health expenditures will grow by an average of 5.4 percent a year compared to an estimated 4.6 percent increase in the GDP, on average, over that same time period. GDP represents the value of all finished goods and services produced in the U.S.

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The report also finds that while an all-time high of 92.3 percent of the population was estimated to be insured in 2022, that percentage is projected to drop in the coming years. Due to the expiration of the COVID-19 Medicaid rules and the expected expiration in 2025 of some Affordable Care Act expanded access provisions, the share of the population with health care coverage should dip to 91.2 percent in 2025 and 90.5 percent in 2031.

Out-of-pocket prescription drug spending for Medicare Part D enrollees is projected to decline by 5.9 percent in 2024, 4.2 percent in 2025 and another 0.2 percent in 2026.  Savings for these Medicare beneficiaries will result as a number of provisions of the new health law kick in, including the limits on Part D drug prices this year, elimination of the cost-sharing requirement for enrollees whose medication spending reaches the catastrophic phase and the implementation in 2025 of the $2,000 annual cap on out-of-pocket Part D spending. In addition, beneficiares who take certain high-price prescription drugs will begin to see some savings once the Medicare negotiation process begins to take effect in 2026.

Other findings in the report include:

• Medicare costs are expected to grow by 7.5 percent a year between 2022 and 2031. In 2025, Medicare spending is projected to increase by 8.9 percent, in part because of the prescription drug out-of-pocket cap. By 2030 and 2031, Medicare spending growth is estimated to slow to 6.8 percent a year. The actuaries also project that Medicare enrollment growth will begin to slow because the last of the baby boom generation will be enrolling in the program by 2029.

• Private health insurance spending is projected to grow by an average of 5.4 percent a year over the next decade. 

• Prescription drug spending is estimated to grow 4.6 percent a year from 2022 to 2031. 

• Growth in physician and clinical services spending is projected to increase by 5.3 percent a year.

• Annual growth in hospital spending is expected to average 5.8 percent.