CMS Forecasts Health Spending Growth to Slow Slightly

CMS actuaries foresee a gradual rise in per capita health spending, slowing initially but eventually outpacing economic growth. | Image Credit: Kenishirotie - stock.adobe.com

CMS actuaries predict a moderate increase in per capita health spending over the next decade, with growth rates slowing in the near term due to factors like the Inflation Reduction Act (IRA) and the unwinding of Medicaid, according to the Peterson-KFF Health System Tracker.¹

Over the next couple of years, slower per capita health spending is estimated to grow from 4.5% in 2024 to 4.2% in 2025 and 4.3% in 2026. The approximate per capita spending growth between 2027 to 2032 will fluctuate at a 5% average annual rate. Reduced spending is expected in 2026 based on the IRA’s Medicare drug price reforms that are due to take effect.

The 10 drugs negotiated under the IRA accounted for $56.2 billion in total Part D gross covered prescription costs.² About $18.9 billion in out-of-pocket costs were spent on all drugs covered under Part D, including $3.9 billion in out-of-pocket costs for drugs selected for negotiation. Patients enrolled in Medicare prescription drug coverage will save an estimated $1.5 billion under the standard benefit design.

Based on these recent negotiations, the per capita retail for prescription drug spending is expected to grow an average 5.4% from 2026 through 2032.¹ The negotiated prices are predicted to place pressure on Medicare and out-of-pocket costs to reduce prices. The uncertainty of prescription drug spending is based on the development of new drugs for common conditions like diabetes, cancer, and autoimmune diseases.

Predictions from CMS actuaries believe the per capita out-of-pocket spending growth will average 3.5% between 2025 to 2032. Additional pressure on out-of-pocket spending is expected through the IRA’s Medicare prescription drug benefit changes. More specifically, the 5% coinsurance component for catastrophic coverage will be eliminated and the $2000 Part D out-of-pocket spending cap for Medicare beneficiaries will begin.

Medicare spending per enrollee is projected to slow between 2025 and 2032, with a growth rate ranging from 4.9% to 6.5%. However, Medicare spending is expected to reach a 30-year high of 10.2% in 2024.

The ongoing Medicaid unwinding process, which began in 2023, has resulted in the disenrollment of approximately 25 million beneficiaries across all 50 states.³ This process aims to end the continuous enrollment provision implemented during the pandemic, which allowed millions to maintain their coverage. As a result, Medicaid is now reassessing eligibility and disenrolling those who no longer qualify.

The disenrollment of younger and healthier Medicaid beneficiaries will likely increase the spending per enrollee. Overall, Medicaid health spending is projected to average 5.4% between 2025 and 2032.¹

The private insurance market is predicted to decrease in spending growth to an average 4.9% annually in 2025 and 2026. Spending growth is estimated to remain between 4.6% and 5.1% from 2027 to 2032.

Hospital expenses are expected to slow to 4.6% in 2024 and remain stable throughout 2025 and 2026. An average 5.6% annual growth in hospital spending is estimated from 2027 to 2032.

Total spending on physicians and clinics is expected to decrease in costs and then moderate at a slightly higher level. The yearly change in total physician and clinic spending is predicted to be 4.9% in 2025 and 4.8% in 2026. This should moderate to an average annual rate of 5.5% between 2027 to 2032. Total prescription drug spending is estimated to reduce to 4.6% in 2025 but increase to an annual rate of 5.5% between 2026 to 2032.

An increase in per capita out-of-pocket spending is estimated across all services until 2032. An annual 2.9% increase in out-of-pocket hospital services is expected, potentially leading to a 24.6% increase in out-of-pocket costs by 2032. Annual increased rates of out-of-pocket physician and clinical services spending are estimated 3.5%. Expenses in 2024 are about $226 per capita but should increase to $298 by 2032.

CMS estimates a 3.3% increase in out-of-pocket prescription drug spending between 2024 to 2032. Prescription drug out-of-pocket spending is projected to be $227 per capita in 2032, up from $175 in 2024.

Predictions suggest quicker growth increases among health spending compared with the economy in 2025. Health care spending is projected to grow faster than the overall economy, reaching 19.7% of gross domestic product by 2032.

Health spending predictions have been made difficult with unforeseen circumstances like the COVID-19 pandemic. Small changes in growth rates can ultimately lead to large differences over a period. Changes in health employment and patches of inflation can impact the cost of health services.

Per capita health expenditures are projected to increase by 5% annually, rising from $14,423 in 2023 to $21,927 by 2032. According to CMS actuaries, total health expenditures are now estimated to be $2 trillion lower than projected in 2010 and $780 billion lower than projected in 2015.

References

1. McGough M, Winger A, Kurani N, Cox C. How much is health spending expected to grow? Peterson-KFF Health System Tracker. October 7, 2024. Accessed October 8, 2024. https://www.healthsystemtracker.org/chart-collection/how-much-is-health-spending-expected-to-grow/#Annual%20change%20in%20per%20capita%20health%20spending

2. Santoro C. Lower drug prices announced under Medicare negotiation program. The American Journal of Managed Care^®. August 15, 2024. Accessed October 8, 2024. https://www.ajmc.com/view/lower-drug-prices-announced-under-medicare-negotiation-program

3. Bonavitacola J. Medicaid unwinding leads to both loss of, renewed insurance coverage. AJMC. September 19, 2024. Accessed October 8, 2024. https://www.ajmc.com/view/medicaid-unwinding-leads-to-both-loss-of-renewed-insurance-coverage