End of COVID-19 Policies Will Influence National Healthcare Spending

June 15, 2023 - CMS’s Office of the Actuary reported that the average annual growth in national healthcare spending between 2022 and 2031 will exceed the average annual growth in gross domestic product (GDP).

The average growth in national healthcare spending is expected to rise 5.4 percent each year during the study’s timeframe. Since the average annual growth in GDP will reach only 4.6 percent, the healthcare spending share of GDP could hit 19.6 percent in 2031.

Meanwhile, insurance coverage is expected to have reached a record-breaking 92.3 percent in 2022 and 2023. But the end of the public health emergency provisions means that this record will not remain for long. In 2024, Medicaid coverage rates are expected to dive. As a result, by the end of 2025, the coverage rate could be 91.2 percent and by the end of 2031, it could dip to 90.5 percent.

Private health insurance spending growth will peak in 2023

Private health insurance spending from 2022 to 2031 is expected to grow 5.4 percent yearly. In 2022, spending increases will accompany fast enrollment growth but slower utilization growth.

By 2023, utilization will pick up and push spending growth to 7.7 percent, expected to be the peak growth rate for the next several years. The following year, the growth rate is expected to hover.  

In 2026, enhanced Marketplace subsidies expire, lowering enrollment and spending. Between 2025 and 2031, the growth rate will decline to 5.2 percent on average per year.

Meanwhile, out-of-pocket healthcare spending growth will drop to 4.3 percent in 2022, a quick decline from the previous year. Over the next several years, from 2025 to 2031, growth in this area is expected to hover around 4.1 percent annually.

However, in 2023, out-of-pocket spending will inch briefly up to 5.2 percent, but by 2026 negotiated drug pricing policies will drive spending growth down to 3.6 percent.

Lower Medicaid enrollment will temporarily drive down spending

When the continuous enrollment provision ends in 2023, Medicaid spending may decline. Medicaid expenditures are projected to grow 5.0 percent across the entire timeframe. The bulk of disenrollment due to the loss of continuous enrollment will occur in 2024 when 8 million beneficiaries are expected to disenroll.

With lower enrollment levels, spending growth will drop to 3.7 percent in 2023 and 2.1 percent in 2024. However, as healthier enrollees drop out of the Medicaid program, per enrollee average costs will rise to a level not seen since 1991, with 7.4 percent growth in 2024.

Enrollment will increase over the course of the next several years. As a result, spending will experience a slight uptick toward the end of the timeframe, averaging 5.6 percent annual growth.

Medicare spending will accelerate

Medicare spending is expected to grow 7.5 percent annually from 2022 to 2031. Growth slowed in 2022, but by 2025 experts anticipated that it will have surpassed 2021 levels at 8.9 percent growth. In 2023, this higher pace in growth will lead to over $1.0 trillion in Medicare spending, with hospital spending growth (11.0 percent) driving this trend.

From 2025 to 2031, the average spending growth is projected to be 7.8 percent. However, growth will fall again in the final two years of this timeframe, dipping down to, on average, 6.8 percent growth for 2030 and 2031. During these final years, the Medicare enrollment rate is expected to decline since the baby boomer generation will be fully enrolled.

Across all markets, these fluctuations are closely tied to the Inflation Reduction Act, which implemented caps on certain types of spending, drug price negotiation, and inflation rebates.

Under the Inflation Reduction Act, Part D price increases and Part D out-of-pocket spending will be capped, cost-sharing in the Part D catastrophic phase will disappear, and drug price negotiation will lead to lower out-of-pocket spending on expensive drugs.