Health spending is likely to grow by 5.4% per year through 2028. Here's why

National health spending is likely to grow by 5.4% per year over the next decade, according to new estimates from the Centers for Medicare & Medicaid Services (CMS). 

CMS’ Office of the Actuary released its annual predictions on national health expenditures Tuesday, and the agency projects health spending will account for 19.7% of the gross domestic product by 2028. 

Price growth is likely to accelerate, the actuary said, with a 2.4% growth rate due in large part to faster growth in healthcare workers’ wages. 

“As it has over the past several decades, health spending is expected to grow, on average, more rapidly than the rest of the economy in each year of the projection period through 2028 and to consume an increasingly larger share of GDP,” the actuaries wrote. 

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The largest source of the growing spending will be Medicare, according to the report, as baby boomers continue to age into the program in large numbers. The federal government’s share of healthcare spending is set to increase from 28% in 2018 to 31% in 2028.

The actuary projects Medicare spending will increase by 7.6% per year on average as enrollment growth far outstrips other programs. Medicare enrollment is expected to grow by 2.5% over the next decade, compared with 1.1% growth in Medicaid and 0.4% in private insurance.

The growth in Medicare enrollment—and accompanying spending—will offset a projected increase in the national uninsured rate over the next 10 years, according to the actuary. CMS estimates that the insured rate will decline from 90.6% in 2018 to 89.4% in 2028.

A business line that could see significant spending boosts in the coming decade is prescription drugs, with spending expected to accelerate on average 5.4% per year as both price and utilization increase. However, the actuary said that increase will be largely on the back of higher spending among people with private coverage, especially in the latter half of the decade.

By 2024, the actuary estimates that drug spending in commercial plans will grow on average 5% per year, up from 3.7% in 2021 through 2023.

“Policymakers and other stakeholders will undoubtedly continue to monitor these trends and their implications for the health sector, federal and state budgets, and the economy as a whole,” the actuaries wrote.