CMS projects national health spending grew 7.5% in 2023 to $4.8T

National health spending is estimated to have outpaced the rest of the country’s economy in 2023, growing by 7.5% with projected expenditures of $4.8 trillion, according to newly published calculations from the government’s actuary.

Those projections reflect historic high health insurance coverage of 93.1% of the U.S. population, due in large part to pandemic policies that fueled enrollment in Medicaid and marketplace plans alike, Centers for Medicare & Medicaid Services (CMS) Office of the Actuary (OACT) economists wrote in a study published Wednesday in Health Affairs.

Specifically, Medicare spending is projected to have grown 8.4% in 2023 with expenditures topping $1 trillion, up from the 5.9% growth rate of the year prior. Private health insurance spending is projected to have risen 11.1% as out-of-pocket spending grew by 7.9%, both of which represent accelerations in year-to-year spending.

Only Medicaid spending was estimated to have slowed, from 9.6% growth in 2022 to 5.7% in 2023. Enrollment in the program is also expected to dip from its 91.2 million-person peak after this year when a pandemic policy requiring continuous enrollment runs its course.

Hospital spending is projected to have skyrocketed from a 2.2% increase in 2022 to a 10.1% increase in 2023, “in part because of increasing utilization,” OACT economists wrote. Physician and clinical services spending also is expected to have increased, from 2.7% to 8.4%, whereas retail prescription drug spending growth is projected to have dipped from 2022’s 8.4% to 7% in 2023.

Together, national health spending growth is estimated to have exceeded nominal economic growth in 2023, inching health spending’s share of gross domestic product (GDP) from 2022’s 17.3% to an expected 17.6% in 2023.

OACT’s newly published projections outline the country’s expected healthcare spending over the next decade. Here, health spending’s 5.6% average annual spending growth is expected to keep on outpacing the 4.3% nominal GDP growth rate, landing health spending as 19.7% of the country’s GDP by 2032.

“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,” Jacqueline A. Fiore, an economist at CMS' OACT, explained in a statement on the growth trends.

Medicare is set to lead the way. The program’s spending is projected to grow 7.4% per year on average through 2021 as baby boomers push enrollment growth by an expected 2% growth rate. It’s followed by private health insurance spending’s projected 5.6% growth rate, Medicaid’s 5.2% and out-of-pocket’s 4.7%.

Of note, though Medicaid enrollment in 2024 is expected to drop 11.2% (10.2 million people) and contract the program’s spending by 2.2%, overall population insurance coverage is expected to drop just 0.4 percentage points as many of those individuals shift to private and marketplace plans.

OACT also noted that out-of-pocket spending growth will dip from 2025 to 2026 as parts of the Inflation Reduction Act concerning drug spending caps take effect. Medicare’s reduced spending on these drugs under the law is also set to push the program’s spending growth down somewhat across the back half of the next decade.

Across the decade, hospital spending growth is expected to average 5.7%. Physician and clinical services is projected to rise at 5.6%, and retail prescription drugs expected to grow 6%.  

Overall, OACT projects that national health spending will have risen from 2023’s estimated $4.8 trillion to $7.7 trillion by 2032. By that year, non-government sponsors of healthcare will comprise 51% of the total spending—about on par with 2022’s 52%.