By Kelsey Waddill
– The CMS Office of the Actuary has reported that average annual growth in national health care spending between 2022 and 2031 will exceed average annual growth in gross domestic product (GDP).
The average growth in national health expenditure is expected to increase by 5.4% each year during the study period. As the average annual growth of GDP will reach only 4.6%, the share of health expenditure in GDP could reach 19.6% in 2031.
Meanwhile, insurance coverage is expected to hit a record 92.3 percent in 2022 and 2023. But the end of public health emergency provisions means that record won’t stand for long. In 2024, Medicaid coverage rates are expected to fall. As a result, by the end of 2025, the coverage ratio could be 91.2%, and by the end of 2031 it could fall to 90.5%.
Growth in private health insurance spending will peak in 2023
Spending on private health insurance from 2022 to 2031 is projected to grow by 5.4% annually. In 2022, increased spending will accompany rapid growth in memberships but slower growth in usage.
By 2023, usage will increase and push spending growth to 7.7%, which is expected to be the peak growth rate for the next few years. The following year, the growth rate should fluctuate.
Enhanced Marketplace grants will expire in 2026, reducing signups and spending. Between 2025 and 2031, the growth rate will drop to 5.2% on average per year.
Meanwhile, growth in direct healthcare spending will decline to 4.3% in 2022, a rapid decline from a year earlier. In the coming years, from 2025 to 2031, growth in this area is expected to be around 4.1% per year.
However, in 2023, direct spending will briefly rise to 5.2%, but by 2026 negotiated drug pricing policies will reduce spending growth to 3.6%.
A lower Medicaid enrollment will temporarily reduce spending
When the continued enrollment supply ends in 2023, Medicaid spending could decline. Medicaid expenses are projected to increase 5.0% over the entire time frame. Most cancellations due to loss of continued enrollments will occur in 2024, when 8 million beneficiaries are expected to opt out.
With lower enrollment levels, spending growth will decline to 3.7% in 2023 and 2.1% in 2024. However, as healthier enrollees exit Medicaid, average costs per enrollment will rise to an all-time high since 1991, with a growth of 7.4%. in 2024.
Enrollments will increase over the next few years. As a result, spending will increase slightly towards the end of the time period, with an average annual growth of 5.6%.
Medicare spending will accelerate
Medicare spending is projected to grow 7.5% annually from 2022 to 2031. Growth slowed in 2022, but by 2025 experts predict it will surpass 2021 levels with 8.9% growth . In 2023, this higher pace of growth will drive more than $1.0 trillion in Medicare spending, with hospital spending growth (11.0%) leading this trend.
From 2025 to 2031, the average growth in spending is expected to be 7.8%. However, growth will decline again in the final two years of this time frame, falling to an average growth of 6.8% for 2030 and 2031. During these final years, the Medicare enrollment rate is expected to decline as the generation of the baby boomers will be fully enrolled.
In all markets, these fluctuations are closely tied to the Inflation Reduction Act, which has implemented limits on certain types of spending, drug price negotiation and inflation discounts.
Under the Inflation Reduction Act, Part D price hikes and Part D out-of-pocket expenses will be limited, Part D catastrophic cost sharing will disappear, and drug price negotiation will lead to lower out-of-pocket expense for expensive drugs.
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