National health spending is expected to grow 4.9% annually over the next three years and 5.3% from 2025 to 2030, according to the latest estimates from the Centers for Medicare & Medicaid Services (CMS).
This is expected to be driven in part by higher drug price growth and new pharmaceutical launches.
National health spending growth is expected to be more than 4% for 2021, at $4.3 trillion. That figure compares to nearly 10% growth in 2020, driven by large inflows of government funding related to the pandemic. Healthcare utilization is expected to rebound in 2021 and normalize through 2024, by which time the government share of health spending is expected to fall to 46%. (It was at a record-high 51% in 2020.)
Economic growth is expected to outpace health spending growth in the next few years but reverse between 2025 and 2030. This will result in healthcare’s share of the economy being nearly identical to that in 2020, at 19.6%.
“As far as understanding directional changes—it’s really a matter of context,” said Andrea Sisko, an economist at the CMS Office of the Actuary, in a webinar for media Monday. Though growth is expected to slow in 2023 and 2024, she added, “that’s relative to the pandemic effects and certainly growth is actually higher than what you see in 2019.”
“While there is still considerable uncertainty around the COVID-19 pandemic, its related health and economic impacts are projected to lessen in the next few years,” John Poisal, deputy director for the National Health Statistics Group in CMS, said in an announcement. “From 2025 onward, we expect economic and demographic factors to reemerge as the most influential drivers of health sector spending trends.”
Declining federal COVID-19 funding in 2021 is expected to have contributed to slower hospital and physician and clinical services spending growth. These rates, however, are expected to accelerate significantly in 2022 as demand for services picks back up. Hospital price growth is also expected to accelerate amid rising labor and other costs. Growth rates are expected to stabilize between 2025 and 2030.
Retail prescription drug spending growth is expected to have accelerated from 2020 to 2021 in part due to higher projected Medicaid drug spend driven by increases in enrollment. This is expected to slow in 2022.
The biggest jump from 2021 to 2030 in national health expenditures by health insurance is expected to be private insurance, followed by Medicare and then Medicaid. The portion of people with health insurance is expected to peak this year at more than 91%, driven largely by Medicaid enrollment. By 2030, the rate is expected to be 90.5%.
Medicare spending growth is expected to have risen from more than 3% in 2020 to more than 11% in 2021 due to growth in personal healthcare spending. This is projected to slow to 7.5% in 2022 and drop further in 2023. But it is expected to balance out at its more typical longer-term rate of around 7%. CMS took into account scheduled increases in sequestration cuts and the slowest projected enrollment growth since 2004—(the last baby boomers will join the program in 2029)—in its calculations.
Similarly, Medicaid spending growth is expected to have expanded in 2021 to more than 10% from just over 9% in 2020. It is projected to slow notably this year to 5.7% as states disenroll beneficiaries no longer eligible as the pandemic ends. It will continue dropping but pick back up to about this year’s projected rate between 2025 and 2030, particularly as hospital payment cap reductions expire in 2027, according to the report.
Private health insurance spending is expected to have grown rapidly last year, along with enrollment, to more than 6% from just over 1% the year prior. It is expected to grow further to more than 8% this year but slow in subsequent years to under 5%.
“However, this outlook is contingent on a virus that has evolved and surprised at every turn—and could do so again,” the report concluded. “So although a normalization of health spending and the economy underlie this projection, only time will tell how normal the next decade is.”