National Healthcare Spending May Grow 5% in the 2020s

CMS has released its projections for national healthcare spending from 2021 to 2030, noting that healthcare as a share of the gross domestic product (GDP) will remain comparable to the share in 2020.

Healthcare spending is projected to account for 19.6 percent of the national GDP in 2030. This sector accounted for 19.7 percent of the GDP in 2020.

On average, the CMS Office of the Actuary projected that the national healthcare spending growth rate would reach 5.1 percent in the 2020s. 

The national spending growth rate dropped from 9.7 percent in 2020 to 4.2 percent in 2021 after a year of high spending due to the coronavirus pandemic. The national health expenditure report indicated that the nine years following the initial coronavirus outbreak would not see a fast return to 2020 levels.

Federal funding partially fueled the spike in coronavirus-related spending in 2020. The national health expenditures report found that federal spending would drop from 51 percent of national healthcare spending in 2020 to 46 percent by 2024.

In the next decade, standard factors will drive national healthcare spending, such as economic and demographic drivers. Meanwhile, enrollment and the expiration of certain payment policies will place downward spending pressure on Medicare and bump Medicaid spending upward.

Medicare will experience the biggest healthcare spending growth between 2021 and 2030. The program’s projected spending growth will average around 7.2 percent during the nine-year period. In 2023, Medicare spending could surpass $1 trillion. However, spending is expected to decline despite this large boost as the Baby Boomer generation phases out.

Private payer and out-of-pocket healthcare spending are expected to have the second-highest average spending growth rate among payers from 2021 to 2030. As healthcare utilization patterns normalize and income growth declines, private payer spending growth should average 5.7 percent. 

Out-of-pocket healthcare spending will contribute less than a tenth of all healthcare spending by 2030 (9.0 percent), a record low share of healthcare spending.

Hospitals, provider and clinical services, and prescription drugs are the services and products that will contribute the most to healthcare spending.

Spending on hospital services is expected to grow by an average of 5.7 percent, physician and clinical searches spending may yield a 5.6 percent average growth rate, and retail prescription drug spending may grow 5.0 percent on average.

As with many other healthcare spending categories, the early 2020s may see sharp shifts in spending patterns, but these are expected to stabilize toward the end of the decade. 

For example, after the retail prescription drug spending growth rate dropped in 2020 to 3.0 percent, this sector is thought to have experienced a growth spurt in 2021, reaching a 4.7 percent growth rate. But in 2022, the overall retail prescription drug spending growth should decelerate to 4.3 percent. The average growth rate from 2025 to 2030 is projected to be 5.2 percent.

Separate research has found that national healthcare spending rose by 3.4 percent in 2021, with a year-over-year growth rate of two percent. This was largely the result of a dive in federal spending from $287 billion in 2020 to $170 billion the following year.

Additionally, researchers have noted that the 2020 healthcare expenditures trend fits within a larger, decades-long upward trajectory in national healthcare spending. Private payer member spending totaled $74.1 billion in 1970, $1.4 trillion in 2000, and reached $4.1 trillion in 2020.

However, removing federal funding and public health spending from the equation, growth in 2020 healthcare spending was 1.9 percent.