US Health Spending Hits $4.8 Trillion, Insurance Coverage Peaks in 2023 Projections

The US is witnessing an unprecedented surge in national health expenditures, hitting a historic $4.8 trillion in 2023, according to new projections from the Office of the Actuary (OACT) of CMS, published today in a Health Affairs study.¹ This surge accompanies a landmark achievement in health insurance coverage, with a record 93.1% of the population insured last year. As health spending continues to outpace economic growth, projections suggest expenditures will soar to $7.7 trillion by 2032, urging a focus on sustainable health care financing.

Historic Highs in Health Expenditures and Insurance Coverage

With national health spending estimated to have reached $4.8 trillion in 2023, the projected annual growth rate was reported at 7.5%. | Image Credit: © Mongkolchon - stock.adobe.com

With the national health spending estimated to have reached $4.8 trillion in 2023, the projected annual growth rate is reported at 7.5%. Over the next decade, these expenditures are expected to grow at an average annual rate of 5.6%, culminating in $7.7 trillion.

These estimations suggest that health spending has surpassed nominal economic growth. The health spending share of the gross domestic product (GDP) increased from 17.3% in 2022 to 17.6% in 2023. The data indicate that this trend is predicted to continue, with health spending projected to account for 19.7% of the GDP by 2032. The average annual growth rate of health expenditures (5.6%) over the period from 2023 to 2032 is expected to surpass the nominal GDP growth rate of 4.3%.

“The earlier years of the projection period are expected to reflect divergent trends in spending and enrollment patterns as the health sector transitions away from pandemic-related policy effects,” lead author Jacqueline A. Fiore, economist, OACT, CMS, said in a statement.

Insurance Coverage Reaches Unprecedented Highs

In 2023, the insured portion of the US population is projected to have achieved a historic high of 93.1%, driven by expanded enrollments in Medicaid and Marketplace plans. However, the expiration of the continuous enrollment mandate from the Families First Coronavirus Response Act of 2020² is expected to reduce Medicaid enrollment from 91.2 million in 2023 to 79.4 million by 2025.¹ Despite this decline, the insured rate is forecasted to remain above 90% through 2032.

Medicare and Medicaid Dynamics

Medicare spending is estimated to have surged by 8.4% in 2023, exceeding $1.0 trillion in expenditures, marking an acceleration from the 5.9% growth rate in 2022, according to the Health Affairs study. Similarly, private health insurance spending growth is expected to have risen significantly, from 5.9% in 2022 to 11.1% in 2023. Out-of-pocket spending also saw an increase, growing from 6.6% in 2022 to 7.9% in 2023. Conversely, Medicaid spending growth slowed in 2023 to 5.7% from the previous year’s 9.6%.

Impact of the Inflation Reduction Act of 2022

President Joe Biden signed the Inflation Reduction Act (IRA) into law in August 2022, aiming to mitigate financial burden by expanding benefits and lowering drug costs for those with Medicare.³ The new estimations show a significant influence on Medicare spending trends due to the IRA.¹ Provisions for negotiated drug prices under Medicare Parts B and D and adjustments to cost-sharing requirements are projected to impact spending. Additionally, a temporary special enrollment period under the IRA, along with the extension of enhanced marketplace subsidies, is expected to affect private health insurance enrollments.

Long-Term Spending Projections

Medicare spending is projected to grow at an average annual rate of 7.4% over the 2023-2032 period, driven largely by the continued enrollment of the baby boomer generation through 2029. The study stated that this growth rate outpaces the projected growth rates for private health insurance (5.6%), Medicaid (5.2%), and out-of-pocket expenses (4.7%).

Sector-Specific Spending Trends

Last year, hospital spending is estimated to have surged by 10.1%, a substantial rise from the 2.2% growth in 2022. Looking ahead, hospital spending is expected to grow at an average annual rate of 5.7% over the next decade. Spending on physician and clinical services peaked in 2023 with an 8.4% growth, up from 2.7% in 2022, and is projected to grow by 5.6% annually from 2023 to 2032. Retail prescription drug spending growth is expected to slow to 7.0% in 2023 from 8.4% in 2022 and to average 6.0% annually through 2032.

The Role of Nongovernment and Government Sponsors

The burden of health care costs remains nearly equally distributed between private and public sectors, according to the study. Nongovernment sponsors—including businesses, households, and other private revenues—are anticipated to account for a consistent share of total health spending, from 52% in 2022 to 51% by 2032. Meanwhile, the government's share of spending is forecasted to fluctuate slightly, decreasing to 46% in 2024 from 48% in 2023 and 2022, before rising to 49% by 2032.

The latest projections published in Health Affairs demonstrate robust growth in health spending, driven by an aging population, expanding insurance coverage, and evolving policy landscapes. As the nation navigates these dynamics, the focus on sustainable and equitable health care financing will become increasingly critical.

References

1. Fiore JA, Madison AJ, Poisal JA, et al. National health expenditure projections, 2023–32: Payer trends diverge as pandemic-related policies fade. Health Affairs. Published online June 12, 2024. https://www.healthaffairs.org/doi/10.1377/hlthaff.2024.00469

2. Galewitz P. Nearly 1 in 4 adults dumped from Medicaid are now uninsured, survey finds. KFF Health News. April 12, 2024. https://kffhealthnews.org/news/article/quarter-medicaid-disenrolled-uninsured-kff-survey/

3. Inflation Reduction Act of 2022. HHS. Updated May 31, 2024. Accessed June 12, 2024. https://www.hhs.gov/inflation-reduction-act/index.html#:~:text=President%20Biden's%20prescription%20drug%20law,strengthening%20Medicare%20for%20the%20future.