A new report from federal actuaries estimates national health spending will increase by 7.1% in 2025, with spending growth set to outpace growth in the U.S. gross domestic product.
The Centers for Medicare & Medicaid Services Office of the Actuary released its annual look at spending projections last week, and it estimates that from 2026 to 2027, healthcare spending will increase by 5.6% on average, driven by a likely decline in the number of people with insurance.
The actuaries also predict that a recent spike in utilization will slow down, according to the report, which was published in Health Affairs.
They note that the study is based on current policy and law and that changes there could have a significant impact on spending trends.
“As a result of these elevated rates of health care spending growth, relatively larger increases in the health share of GDP are projected for both 2024 and 2025,” the actuaries wrote. “For 2026 and later, the growth rates for utilization and spending are generally expected to moderate, while at the same time many notable enrollment changes are expected to occur … leading to a somewhat lower insured share of the population.”
By 2033, the actuaries expect healthcare spending to account for 20.3% of the economy.
Personal healthcare spending, or what was spent on medical services or goods, is projected to grow by 8.7% in 2024, following 2023 in which it increased by 9.4%. The utilization increase in this arena was higher than many publicly traded insurers expected, driving an increase in medical loss ratios for some companies.
Hospital spending growth, meanwhile, is likely to have moderated between 2023 and 2024, according to the report. Growth was 10.4% in 2023 and is projected to be 9.2% in 2024.
The report said spending in the private insurance market on hospital services has declined but remains high.
Prescription drug spending is also expected to slow in 2024, the actuaries said. However, spending growth does remain high, declining from 11.4% in 2023 to 10.1% in 2024.
For 2024, the report projects that overall insurance enrollment will remain largely stable but decrease slightly from 2023, when 92.5% of people were insured. In 2024, the actuaries estimate that 92.1% of people were covered.
The 2023 peaks, according to the report, were supported by high Medicaid enrollment during the COVID-19 pandemic and the premium tax credits for Affordable Care Act plans. The actuaries said that the redeterminations in Medicaid likely fueled a decline in enrollment and noted that the enhanced subsidies are set to expire this year.
The high level of insurance in combination with the spike in utilization are key factors in the overall spending growth for 2024, according to the report.
“Although the projections presented here reflect current law, future legislative and regulatory health policy changes could have a significant impact on the projections of health insurance coverage, health spending trends, and related cost-sharing requirements, and they thus could ultimately affect the health share of GDP by 2033,” the actuaries wrote.