National healthcare spending grows 7.5% to nearly $4.8T

National healthcare spending is expected to reach nearly $4.8 trillion in 2023, according to the latest projections from the CMS Office of the Actuary.

In a study published in Health Affairs, federal actuaries reported that healthcare spending in the US is projected to have increased 7.5% last year, faster than the nominal gross domestic product (GDP) growth rate of 6.1% that year. As a result, healthcare’s share of GDP is slated to rise slightly to 17.6% from 17.3% in 2022.

The actuaries attributed rising expenditures to an increase in the insured population in 2023, which they said “is expected to reach an unprecedented high” of 93.1%. More people were insured last year as states sought to unwind pandemic-era Medicaid enrollment flexibilities. During that time, there is a projection-period peak of 91.2 million Medicaid beneficiaries (on an average monthly enrollment basis).

At the same time, private health insurance enrollment was also up by 2.9% because of enhanced subsidies for direct-purchase health insurance under the Inflation Reduction Act (IRA) of 2022 and a temporary special enrollment period for qualified people losing Medicaid coverage after eligibility redeterminations. These two circumstances led to a 10.4% increase in privately insured Americans last year, the study showed.

Utilization of healthcare services increased with more Americans insured in 2023, contributing to higher spending.

CMS actuaries also credited greater spending to personal healthcare prices. They found a 2.5% increase in price growth as measured by the “Personal Health Care Price Deflator.” The study described the increase as modest but noted that prices grew faster than the period immediately before the COVID-19 pandemic.

While Medicaid enrollment is slated to decrease significantly as eligibility processes return to normal, the study still projects a steady increase in national healthcare expenditures over the next decade.

During the full projection period from 2023–2032, growth in national healthcare expenditures is slated to average 5.6%. The rate will outpace the nominal GDP growth rate of 4.3% and lead to over $7.7 trillion in national healthcare spending by 2032. The actuaries expect healthcare’s share of the GDP to increase to 19.7% by the end of the period.

Among major payers, actuaries estimated Medicare to have the highest projected ten-year average spending growth rate at 7.4% versus private health insurance (5.6%), Medicaid (5.2%), and out-of-pocket (4.7%) expenditures. Medicare enrollment is projected to increase by 2.0% each year during the period as Baby Boomers age into the program.

For the three major services and goods (hospital, physician and clinical services, and prescription drugs), actuaries predicted similar growth rates during the full projection period. They project a 5.7% average spending growth rate for hospital expenditures, 5.6% for physician and clinical services, and 6.0% for prescription drugs.

“As time passes, the COVID-19 pandemic and associated temporary spending and enrollment effects are expected to retreat, and health spending and enrollment patterns are expected to resemble their longer-term trends more closely and to be driven to a greater extent by traditional economic and demographic factors,” the study concluded.