Healthcare spending will make up 20% of U.S. economy within a decade

Bar graph with arrow showing upward growth

Healthcare spending will comprise 20 percent of the U.S. economy by the middle of next decade, according to new data from the Office of the Actuary of the Centers for Medicare & Medicaid Services and published in Health Affairs.

Expenditures on healthcare services will grow at an average rate of 5.8 percent per year between 2015 and 2025, about 1.3 percent higher than projected annual growth in the U.S. gross domestic product, CMS concluded. By 2025, healthcare spending will comprise 20.1 percent of the U.S. economy, up from 17.5 percent in 2014. Expenditures totaled $3.2 trillion last year.

Despite the seemingly robust spending growth, it remains lower than the 8 percent annual growth clip that occurred in the two decades before the Great Recession of 2008, which helped to slow expenditures significantly. In 2015, spending grew at a 5.5 percent rate. This year, it is projected to be 4.8 percent, attributable in part to the slower expansion of newly insured under the Affordable Care Act.

"The Affordable Care Act continues to help keep overall health spending growth at a modest level and at a lower growth rate than the previous two decades. This progress is occurring while also helping more Americans get coverage, often for the first time," said CMS Acting Administrator Andy Slavitt in a statement.

In addition, he said that per-capita spending and medical inflation also remain at historically very modest levels, which demonstrates the importance of continuing to reform healthcare delivery systems. "As we look to the future we must continue our efforts that keep people healthy, providing access to affordable, quality care, while spending smarter across all categories of care delivery," Slavitt said.

Medical price inflation was only 0.8 percent last year, down from 1.4 percent in 2014, with hospital price inflation up just 0.9 percent. Prices for physician services actually dropped 1.1 percent last year.

Much of the projected price growth in the coming years will be driven by expansion of the Medicaid program, private health insurance and expenditures on pharmaceuticals.

A recent report concluded that the spending growth connected to the Affordable Care Act could lead to expenditures $2.6 trillion lower than originally projected over the next several years.

Despite the relatively moderate healthcare spending curve, there are some economists who fear the growth may damage the U.S. economy over the long term.

- read the Health Affairs article
- check out the CMS statement