Altarum’s monthly Health Sector Economic Indicators (HSEI) spending series tracks US health care spending and its components on a monthly basis using data released by the Bureau of Economic Analysis and other sources to reflect as closely as possible the categories and spending totals published annually by the Centers for Medicare and Medicaid Services (CMS) in the National Health Expenditure Accounts (NHEA). While the NHEA provide the best final record of US heath spending, they are only published annually and typically with a lag of about a year. Therefore, the HSEI spending data can be used to provide more timely and monthly estimates to assess very recent health-sector trends, such as a review of COVID-19 impacts published in 2020.
In this piece, we use the HSEI data to analyze 2022 health spending, break down trends by payer and by price/utilization components, and compare the health spending totals to what health spending was forecasted to be based on prior CMS projections.
Overview
Incorporating new data from Altarum’s HSEI spending series, we estimate that full-year 2022 health spending reached $4.42 trillion dollars. This is a modest $160 billion dollar increase from a year prior and implies a year-over-year growth rate of 3.8 percent. Growth in spending has slowed significantly from the 10.3 percent jump seen in 2020, when national health expenditures increased on the back of large federal government outlays in temporary financial support for health care providers and increased public health expenditures that were needed to respond to the public health emergency.
The moderate increase in 2022—driven by a combination of slower increases in health care use and prices and a decline in temporary federal government support compared to 2020 and 2021—occurred alongside much faster economywide inflation (7.0 percent) and nominal gross domestic product (GDP) growth (9.2 percent), both of which accelerated substantially. As a result, we estimate that health care spending as a share of GDP fell to 17.3 percent in 2022, down from 19.7 percent in 2020, the smallest share of the economy since 2014. 17.3 percent is also a smaller share than what was observed in 2019, a year before the pandemic began, and is well below the range of CMS’s pre-pandemic health spending share projections (exhibit 1).
Exhibit 1: National health care spending, percentage of gross domestic product (2007–22), projected and actual
If health care spending had instead risen to 19 percent of GDP in 2022 (the average of the range of CMS health expenditure projections made for the years 2010 to 2020), total health care spending would have been $4.83 trillion, $420 billion dollars greater than what is estimated for 2022 in our data. CMS projections of future growth in health spending as a percent of GDP have tended to moderate somewhat over time; for example, the 2013 projection for 2022 estimated total spending of 19.9 percent of GDP, while the 2020 projection for 2022 estimated only 18.4 percent of GDP. We show comparisons of current health spending shares to a range of older projections (and not just the most recent preceding year’s projection) in this analysis because health care planning and decision making occurs over very long time frames, and the older projections would have impacted forward-looking policy and business decisions at the time of their release.
Regardless of the specific year(s) of comparison, what we have observed for 2022 is a smaller share of the economy (17.3 percent) going toward health than was predicted by many health care economic and policy experts prior to the pandemic. In this piece, we highlight key underlying components in health spending that might help explain the 2020–22 slowdown and the future trajectory of US health spending.
Spending By Major Payer
The four major payment sources for health care made up about 80 percent of total US health expenditures in 2022: private insurance ($1.25 trillion), Medicare ($957 billion), Medicaid ($812 billion), and out-of-pocket spending ($449 billion). 2022 Medicare and Medicaid spending levels are estimated by applying year-over-year growth rates from the Congressional Budget Office’s Monthly Budget Review series to 2021 NHEA data, while private insurance and out-of-pocket spending are estimated as the residual of the HSEI total estimate and other calculated payer categories.
As a percentage of total US GDP since 2007, health spending by private insurance has hovered around an average of 5.0% of GDP (although has fallen recently), while spending by Medicare has increased from around 3.0 percent to near 4.0 percent and Medicaid spending increased from 2.5 percent to more than 3.0 percent (exhibit 2). In the most recent 2020–22 period of health spending slowdown, Medicare and private insurance spending have both fallen as a percentage of GDP, while Medicaid spending increased slightly.
Exhibit 2: Health care spending by major payers, percentage of gross domestic product (2007–22), projected and actual
When we contrast the actual health spending through 2022 with the projections made by CMS between 2010 and 2020, we see the greatest divergence between them has been in private insurance. CMS projections made between 2010 and 2020 indicate it was expected that by 2022 private insurance spending would account for between 6.0 percent and 6.5 percent of total US GDP; however, our data suggest that it was only 4.9 percent in 2022. Similarly, Medicare spending was expected to be between 4.1 percent and 4.5 percent last year but instead in 2022 only reached 3.8 percent. Medicaid spending and out-of-pocket expenditures as a percentage of GDP are in line with the spending projections made over this period.
Our previous work has shown that overall spending growth by private insurance payers since 2008 has primarily come from increased spending per enrollee, while Medicare and Medicaid spending growth has been more attributable to increased enrollment. When assessing the projections for enrollment growth and spending per enrollee, we find that enrollment predictions for Medicare and private insurance were largely accurate through 2022, meaning that divergence from projections in their spending as a percentage of GDP are mostly due to lower-than-expected increases in spending per person through 2022.
The average of prior CMS projections for cumulative per-enrollee private insurance spending growth since 2008 had predicted an 82 percent increase; however, we’ve observed only a 59 percent per-enrollee increase through 2022. Similarly, for Medicare a 52 percent cumulative increase in per-enrollee spending was expected but only increased 42 percent based on new data.
Parsing The Private Insurance Trends
The implication of the slower-than-projected, per-enrollee spending by private insurance depends on why spending growth has fallen below expectations. One hypothesis is that lower spending on care by insurers is due to higher deductibles and greater patient cost sharing. While we don’t see major spikes in out-of-pocket spending, it is likely that cost sharing impacts patient demand for care, reducing access and affordability such that overall spending growth by private health insurance declines. Similarly, access and use per enrollee could fall due to recent health system supply constraints that are increasing average wait times and making it more difficult to find care.
Other possible explanations for this slower per-enrollee growth are that the long-term Affordable Care Act (ACA) provisions have gradually increased access to primary care and preventive services such that patients are healthier and less costly in the long run or that changes in the mix of Medicaid, Medicare, and private insurance coverage have resulted in slower than expected health care price growth. It is also possible that Medicaid expansion has made the pool of private insurance enrollees healthier than expected or that the Marketplaces for individual coverage could have increased insurer market power and led to lower negotiated rates with providers. Final possible explanations include that the increased use of utilization management tools by insurers, such as step-therapies and prior authorizations, have lowered use or that other factors have caused historically rapid health care price growth to slow relative to economywide inflation, driving a slowdown in spending, as discussed in the next section.
Health Care Price Growth And Economywide Inflation
Health care prices in the United States are high and rose faster than economywide inflation between 1989 and 2019, averaging 2.6 percent annually, while the GDP deflator measure of economywide inflation has averaged only 2.0 percent. This gap was a major contributor to health care’s increasing share of US GDP over that period. Exhibit 3 shows two distinct hypothetical health spending scenarios of alternate health care inflation trajectories, the first hypothetical beginning in the base year 1989 and another beginning in the base year 2020. The first hypothetical shows how, if health care price growth had matched economywide inflation between 1990 and 2019, health spending as a percentage of GDP would have been nearly three percentage points lower (14.8 percent versus 17.6 percent), with much of that gap developing during rapid health care price growth between 2000 and 2010.
Exhibit 3: Health care price growth versus economywide inflation impacts on health spending as a percentage of gross domestic product (1989–2022)
However, from 2020 to 2022, this historical faster-than-inflation growth of health care prices has inverted. Economic recovery in 2021 and 2022 has been marked with rapid levels of commodities and non-health care services inflation; yet, health care price growth has remained under control. As a result, we see the opposite effect in the past two years, in which health care price growth has been a major contributor to the health spending slowdown. Exhibit 3 shows this effect in the second hypothetical trajectory between the years 2020 and 2022 and how actual lower-than-expected health care price growth has pulled health spending as a percentage of GDP downward. If health care price growth had matched the acceleration in economywide inflation, health spending would have only fallen to 18.5 percent rather than 17.3 percent of GDP. Even if health care prices soon follow and overtake overall higher inflation, the slowdown to date will have been a major contributor to a spending share decline.
Conclusion
Looking ahead to 2023 and beyond, the trajectory of health spending’s share of GDP is dependent on the persistence of the trends seen over the past two years. If underlying health care price growth remains moderate, while broader economic growth and economywide inflation persist, it is feasible that the spending slowdown continues. Conversely, if health care price inflation accelerates or the pandemic-driven reduction in health care service use that continued at least through the third quarter of 2022 abates, we could see health spending rise back to pre-pandemic levels. However, the current data are showing that the overall health spending growth path has been reset to a lower base than was expected prior to the pandemic.
Whether the observed spending slowdown represents societally beneficial improvements to the US health system depends on underlying reasons for declines. Declines that are driven by more moderate health care price growth and a shift from expensive, unnecessary care to preventive services (or even just relatively faster GDP growth) would be major accomplishments and a step toward bending the cost curve. As discussed above, it is possible that the long-term impacts of ACA provisions are having this result and have improved population health.
Alternatively, it could be true that declines in spending are due to reduced access, decreased provider supply, greater patient cost sharing and medical debt, and decreased use of necessary services. Spending data must always be assessed in combination with information on health care affordability, access, equity, outcomes, patient satisfaction, and quality. This is because “bending the cost curve” shouldn’t just mean decreasing health care expenditure growth; it should also mean doing so while improving the value we get from our health care system, and by many measures the US has a long way to go in that respect.