This chart collection explores how health spending is expected to grow in coming years, based on National Health Expenditure (NHE) projections from federal actuaries. A related chart collection explores how U.S. health spending has changed over time using historical data, and an interactive tool allows users to explore health spending changes over time.
Each year, actuaries from the Centers for Medicare and Medicaid Services (CMS) project future spending on health. Per capita health spending growth slowed in 2021 (growing at an annual rate of 2.6% in 2021, down from 9.9% in 2020) after an acceleration in 2020 related to COVID-19 pandemic management. With utilization continuing to return to pre-pandemic levels and price inflation in the health sector, per person health spending is projected to rebound to an annual rate of 4.8% per capita on average from 2022 to 2031, which is slightly above pre-pandemic growth rates (average of 3.9% from 2014 to 2019).
The pandemic has had direct and indirect effects on the health system that can make projections difficult. COVID-19 has led to new costs for vaccination, testing, and treatment and has also caused other shifts in health utilization and spending. Some people missed or delayed routine care or cancer screenings earlier in the pandemic, for example, which could lead to pent-up demand, worsening health conditions, or more complex disease management going forward. Increased use of telemedicine could also shift spending patterns in the future. Further, the recent broad-based inflation trends in the economy and health sector employment trends also add to the uncertainty of these projections.
Prescription drug spending grew 7.7% per capita from 2020 to 2021. Increases in Medicaid prescription drug spending drove overall per capita prescription drug spending growth during the pandemic, largely due to increases in Medicaid enrollment. However, in 2022, slower Medicaid enrollment growth is expected to have slowed growth to 4.7% per capita. Growth in drug spending is projected to slow to 2.8% per capita in 2023, as Medicaid enrollment declines. Medicare prescription drug spending is also expected to slow as generic drugs enter the market for some drug categories and Inflation Reduction Act Medicare drug price reforms take effect.
Retail prescription drugs do not include drugs that are physician-administered in hospitals, physician offices, outpatient centers, long term care facilities, and at home. Trends in physician-administered drug spending may differ from trends in spending on retail prescription drugs.
With care resuming after the first year of the pandemic, out-of-pocket spending per capita also rebounded – rising by 10.3% in 2021 from 2020. Out-of-pocket spending per person declined from $1,229 in 2019 to $1,192 in 2020, followed by a rebound to $1,315 in 2021. CMS actuaries expect growth in per capita out-of-pocket spending to moderate in coming years. Out-of-pocket spending is expected to have grown by 3.8% per capita in 2022 and 4.4% per capita in 2023, but to drop to an average of 3.4% per capita for the following seven years. Moderate growth in out-of-pocket spending per capita compared to total health spending is driven in part by of the Inflation Reduction Act’s Medicare Part D benefit redesign.
Across all payers, per enrollee spending is projected to accelerate in 2023 and 2024.
Growth in per enrollee Medicare spending is estimated to have slowed in 2022 to 3.1%, but is expected to rebound in 2023, partly driven by return in hospital use after a decrease in 2022.
Per enrollee Medicaid spending is expected to grow by 7.4% in 2024, the highest rate in 30 years. With Medicaid unwinding, younger and healthier Medicaid enrollees are more likely to be disenrolled, leading to higher per enrollee Medicaid spending. While per enrollee Medicaid spending is expected to grow, overall spending is expected to fall, due to disenrollments. From 2023 to 2024, CMS expects Medicaid enrollment to decline by 8.9% or 8.0 million and overall Medicaid spending to decrease by -2.1% ($834 billion in 2023 to $817 billion in 2024). From 2025 through 2031, CMS projects per enrollee Medicaid to somewhat moderate at an average annual rate of 4.9%.
Among private insurance enrollees, spending growth is estimated to have slowed to 1.5% in 2022 as service use remained low in the third year of the pandemic. However, per enrollee private insurance spending growth is expected to accelerate in 2023 and 2024 at 6.8% annually as a result of growth in both use and prices.
Note: Data on total expenditure by type of service was used to calculate annual percent change.
Source: KFF analysis of National Health Expenditure (NHE) data
In 2023, aggregate hospital spending is expected to increase by 9.3% due to a rebound in utilization and higher prices due to rising labor costs. Starting in 2025, hospital spending is expected to grow at average annual rate of 6.0% as hospitals transition away from pandemic-related use and spending.
CMS expects total spending on physician and clinical services to grow moderately by 2.4% in 2022 due to the end of federal COVID relief programs. Beginning in 2025, growth in spending on physician and clinical services is expected to increase to an average of 5.7%. Despite this upward pressure, slower Medicare physician payment updates and lower negotiated commercial insurer reimbursement rates under the No Surprises Act are expected to somewhat constrain growth.
Growth in total prescription drug spending is estimated to have decelerated in 2022 to a rate of 5.1%, down from 7.8% in 2021 and decrease further as the various Medicare drug provisions of the Inflation Reduction Act take effect.
Per capita hospital and physician and clinical services spending are expected to increase from 2022 to 2031. Hospital services spending per capita is projected to increase the most of the services analyzed above, at an average rate of 4.9% per year, reaching a high of $148 per capita by 2031 – a 44% increase from 2021.
Physician and clinical services spending per capita is expected to increase at a rate of 3.9% annually during the same period. In 2021, physician and clinical service out-of-pocket spending was $199 per capita but is expected to increase to $284 by 2031.
CMS expects out-of-pocket prescription drug spending per capita to decrease at an average rate of 1.1% per capita, mostly due to the prescription drug provisions in the Inflation Reduction Act. Prescription drug out-of-pocket spending is expected to be $139 per capita in 2031, down from an expected peak of $157 in 2023.
In the years leading up to the pandemic, the share of gross domestic product (GDP) constituting health care hovered around 17.6%. In 2020, when health spending surged as the overall economy slowed, this share climbed to 19.7% of GDP. In 2021, health expenditures as a share of GDP fell to 18.3% as health spending grew much slower than GDP. Health spending is estimated to have grown more slowly than the economy in 2022 and is estimated to have returned to pre-pandemic levels (17.4% of GDP). However, health spending growth is expected to outpace growth in the overall economy starting in 2023 and eventually hit 19.6% of GDP by 2031.
The COVID-19 pandemic made health spending projections even more difficult than in normal years, and even small differences in growth rates can add up to large spending differences over time. Volatile economic conditions, such as changing health employment and periods of inflation, can also impact the cost of health services.
Per capita health expenditures are projected to grow from $13,413 in 2022 to $20,425 in 2031, which is an average annual growth rate of 4.3%. If growth rates end up being 1 percentage point lower each year over that same period, per capita spending would be $1,869 lower than expected in 2031. If growth rates end up being 1 percentage point higher each year, spending would rise to $22,462 per person in 2031.
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