Medicare Surge To Drive Health Care Spending Past $7 Trillion

A surge of Medicare spending on hospitals and other services later this decade will help U.S. health care expenditures outpace inflation and top $7.2 trillion by 2031, federal actuaries said on Wednesday.

Why it matters: The new projections show medical spending across all categories rebounding from the pandemic doldrums, with hospitals being the biggest cost-driver. That likely will make health care become a larger part of household spending.

  • That turnaround will significantly boost spending this year — especially in the private sector, where medical inflation is expected to hit 7.7%, compared to 3% in 2022, according to the estimates from the Centers for Medicare & Medicaid Services’ Office of the Actuary.
  • By 2031, health care will account for 19.6% of the gross domestic product.

Yes, but: The Inflation Reduction Act is expected to lower out-of-pocket spending on prescription drugs for individuals enrolled in Medicare Part D, starting with a projected 5.9% decline next year.

Go deeper: The aging population and federal policy changes will combine to make Medicare experience the highest rate of growth among the major payers, rising 7.5% annually between 2022 and 2031.

  • Program outlays will rise in part due to the way the IRA created a $2,000 cap on Medicare Part D enrollees’ out-of-pocket spending.
  • The growth rate will slow later in the decade, as the effects of drug price negotiations with manufacturers and inflation rebates begin to kick in.
  • The forecast shows Medicare experiencing the highest hospital spending growth, ranging from 7.8% to 8.1% annually from 2025 to 2029 as the last of the baby boomers age into the program and enroll.
  • Program spending on physician and clinical services and prescription drugs will be somewhat less.
    • The actuaries also forecast that the average price growth for hospitals through 2031 (3.2%) will exceed that of physician and clinical services (2%) and prescription drugs (2.2%).

    Medicaid expenditures are projected to grow 5% through 2031, with enrollment expected to decline due to state redeterminations of program eligibility.

    • Private health insurance spending growth is estimated to average 5.4% through 2031. Despite this year’s big jump in utilization and prices, the market is expected to be affected in 2026 by the expiration of enhanced subsidies for Affordable Care Act marketplace plans and a 10% decline for those enrolled in directly-purchased insurance.
    • Medicaid redeterminations and the expiration of enhanced ACA subsidies also will lower the insured rate from a historic high of 92.3% in 2022 to 90.5% by 2031, which is close to pre-pandemic levels.


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