The Centers for Medicare & Medicaid Services’ (CMS) Office of the Actuary released projections of National Health Expenditures (NHE) and health insurance enrollment for the years 2022-2031. The report contains expected impacts from the Inflation Reduction Act (IRA), including that people with Medicare prescription drug coverage (Part D) are projected to experience lower out-of-pocket spending on prescription drugs for 2024 and beyond as several provisions from the law begin to take effect.

CMS projects that over 2022-2031, average annual growth in NHE (5.4%) will outpace average annual growth in gross domestic product (GDP) (4.6%), resulting in an increase in the health spending share of GDP from 18.3% in 2021 to 19.6% in 2031. The insured percentage of the population is projected to have reached a historic high of 92.3% in 2022 (due to high Medicaid enrollment and gains in Marketplace coverage). It is expected to remain at that rate through 2023. Given the expiration of the Medicaid continuous enrollment condition on March 31, 2023 and the resumption of Medicaid redeterminations, Medicaid enrollment is projected to fall over 2023-2025, most notably in 2024, with an expected net loss in enrollment of 8 million beneficiaries. If current law provisions in the Affordable Care Act are allowed to expire at the end of 2025, the insured share of the population is projected to be 91.2%.  In 2031, the insured share of the population is projected to be 90.5%, similar to pre-pandemic levels.

The NHE is published annually and is often referred to as the “official” estimates of U.S. health spending and health insurance enrollment. The historical and projected estimates of NHE measure total annual U.S. spending for the delivery of health care goods and services by type of good or service (hospital, physician, prescription drugs, etc.) and by payer (private health insurance (PHI), Medicare, Medicaid, etc.).

Selected highlights on the IRA as well as NHE spending by major payer include:

Inflation Reduction Act (IRA) on Medicare Part D Enrollees: Several provisions from the IRA are expected to result in out-of-pocket savings for individuals enrolled in Medicare Part D.  Those include: i) limitations on price increases for Part D drugs beginning in 2023, ii) elimination of the cost-sharing requirement in the Part D catastrophic phase (typically 5% beneficiary coinsurance) starting in 2024, iii) implementation of a $2,000 annual cap on out-of-pocket spending on drugs under Part D beginning in 2025, and iv) reduced prices for certain high-cost drugs through negotiation resulting in lower out-of-pocket payments beginning in 2026. These provisions have notable effects on the growth rates for total out-of-pocket spending for prescription drugs, which are projected to decline by 5.9% in 2024, 4.2% in 2025, and 0.2% in 2026.

Medicare: Average annual expenditure growth of 7.5% is projected for Medicare over 2022-2031. In 2022, the combination of fee-for-service beneficiaries utilizing emergent hospital care at lower rates and the reinstatement of payment rate cuts associated with the Medicare Sequester Relief Act of 2022 resulted in slower Medicare spending growth of 4.8% (down from 8.4% in 2021). In 2025, Medicare spending is projected to grow 8.9%, reflecting the effect of the IRA’s cap ($2,000 in 2025) on out-of-pocket spending for Part D enrollees and the associated shift in responsibility for those payments that exceed the cap from the beneficiaries to the program. Projected Medicare spending growth slows to 6.8% in 2030 and 2031, associated with the IRA’s provisions related to drug price negotiations and inflation rebates, as well as slower enrollment growth as the last of the demographic cohort known as the baby boomer generation (those born between 1946-1964) enrolls in 2029.  

Medicaid:  On average, over 2022-2031, Medicaid expenditures are projected to grow by 5.0%. With the end of the continuous enrollment condition in 2023, Medicaid enrollment is projected to decline over 2023-2025, with most of the net loss in enrollment (8 million) occurring in 2024 as states resume annual Medicaid redeterminations. Medicaid enrollment is expected to increase and average less than 1% through 2031, with average expenditure growth of 5.6% over 2025-2031.  

Private Health Insurance: Over 2022-2031, private health insurance spending growth is projected to average 5.4%. Despite faster growth in private health insurance enrollment in 2022 (led by increases in Marketplace enrollment related to the American Rescue Plan Act’s subsidies), private health insurance expenditures are expected to have risen 3.0% (compared to 5.8% in 2021) due to lower utilization growth, especially for hospital services. Faster projected growth in utilization and health care prices in 2023 leads to a 7.7% increase in private health insurance spending. In 2026, private health insurance spending is expected to be impacted by the expiration of enhanced subsidies for Marketplace plans and the associated 10% decline for those enrolled in directly-purchased insurance that year.    

Selected highlights in NHE for the three largest goods and services categories include:

Overview of Hospital Trends: Over 2022-2031, hospital spending growth is expected to average 5.8% annually. In 2022, hospital spending is projected to have increased 0.8%, reflecting declines in PHI and out-of-pocket spending and low growth for Medicare, as growth in the use of hospital services slowed from higher rates in 2021. In 2023, faster growth in hospital utilization rates and accelerating growth in hospital prices (related to economywide inflation and rising labor costs) are expected to lead to faster hospital spending growth of 9.3%.  For 2025-2031, hospital spending trends are expected to normalize (with projected average annual growth of 6.1%) as there is a transition away from pandemic public health emergency funding impacts on spending.

Overview of Physician and Clinical Services Trends: Growth in physician and clinical services spending is projected to average 5.3% over 2022-2031. An expected deceleration in growth in 2022, to 2.4% from 5.6% in 2021, reflects slowing growth in the use of services following the pandemic-driven rebound in use in 2021. For 2025-2031, average spending growth for physician and clinical services is projected to be 5.7%, with an expectation that average Medicare spending growth (8.1%) for these services will exceed that of average Private Health Insurance growth (4.6%) partly as a result of comparatively faster growth in Medicare enrollment.

Overview of Retail Prescription Drugs Trends: Total expenditures for retail prescription drugs are projected to grow at an average annual rate of 4.6% over 2022-2031. Drug spending growth is projected to have slowed from 7.8% in 2021 to 5.1% in 2022, partly due to a decline in private health insurance spending, particularly on newly introduced drugs. Expenditure growth for prescription drugs in 2024 (3.7%) is similar to 2023 (3.6%). It reflects the net impacts from: i) the elimination of 5% coinsurance in the catastrophic phase in Part D, lowering out-of-pocket spending), ii) higher Medicare spending as the program absorbs a portion of out-of-pocket costs formerly paid by beneficiaries, and iii) a decline in Medicaid prescription drug spending due to 8 million in net enrollment losses. For 2025-2031, total spending growth on prescription drugs is projected to average 4.8%, reflecting the net effects of key IRA provisions: i) Part D benefit enhancements (putting upward pressure on Medicare spending growth) and ii) price negotiations/inflation rebates (putting downward pressure on Medicare and out-of-pocket spending growth). 

The Office of the Actuary’s 2022-2031 projections will be published at: http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsProjected.html

A Health Affairs journal article from CMS’ Office of the Actuary is available here: https://www.healthaffairs.org/. To view the Health Affairs’ study on these projections, you can do so at: https://www.healthaffairs.org/doi/full/10.1377/hlthaff.2023.00403.

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A decline in federal government spending led to more modest growth in health care expenditures last year, according to figures released today by the Office of the Actuary at the Centers for Medicare & Medicaid Services (CMS). The 2021 National Health Expenditures (NHE) Report found that U.S. health care spending grew 2.7% to reach $4.3 trillion in 2021, slower than the increase of 10.3% in 2020. The slower growth in 2021 was driven by a 3.5% decline in federal government expenditures for health care that followed strong growth in 2020 due to the COVID-19 pandemic response. This decline more than offset the impact of greater use of health care goods and services and increased insurance coverage in 2021.

The NHE is published annually contains data from 1960 through 2021 and is often referred to as the “official” estimate of U.S. health spending. The NHE measures total annual U.S. spending for the delivery of health care goods and services by type of good or service (hospital, physician, prescription drugs, etc.); type of payer (private health insurance, Medicare, Medicaid, etc.); and type of sponsor (businesses, households and federal/state governments). The NHE report also includes spending on government public health, investment in structures and equipment, and non-commercial research, as well as information on insurance enrollment and uninsured estimates.

Today’s report shows that the decline in federal government health care expenditures in 2021 was driven by a reduction in other federal program spending associated with COVID-19 supplemental funding, including the Provider Relief Fund and the Paycheck Protection Program (PPP), which assisted businesses with payroll, increased expenses, and lost revenue due to the pandemic, as well as a decline in federal public health activity. Spending for such other federal programs declined 62.7% from $193.1 billion in 2020 to $71.9 billion in 2021; however, this was still higher than the level in 2019 of $14.0 billion.

The U.S. gross domestic product (GDP) increased 10.7% in 2021 after contracting in 2020. The acceleration in GDP, combined with slower growth in health care expenditures, contributed to a drop in the share of the economy devoted to health, from 19.7% in 2020 to 18.3% in 2021, still higher than the 17.6% share in 2019.  In 2021, the number of uninsured individuals declined for the second consecutive year as Medicaid and private health insurance enrollment increased.

Health Spending by Major Funds Sources was as follows:

• Private Health Insurance (28% share): Private health insurance spending increased by 5.8% in 2021 to $1.2 trillion. This increase was driven by strong growth in spending for medical goods and services, due to both increased utilization and increased enrollment in 2021. Private health insurance enrollment increased 0.3% in 2021 to reach 200.7 million.
• Medicare (21% share): Medicare spending increased 8.4% to reach $900.8 billion in 2021 following slower growth of 3.6% in 2020. The growth in 2021 reflected the combination of a 3.9% rise in spending for fee-for-service expenditures (accounting for 54% of total Medicare expenditures) and a 14.1% increase in Medicare private health plan spending. Medicare enrollment increased 1.7% in 2021 compared to growth of 2.1% in 2020.
• Medicaid (17% share): Medicaid spending increased 9.2% to $734.0 billion in 2021, similar to the 9.3% growth in 2020. Medicaid enrollment grew faster in 2021, increasing 11.2% following growth of 4.8% in 2020. This faster growth in enrollment was due largely to the continuous enrollment condition established under section 6008(b)(3) of the Families First Coronavirus Response Act (FFCRA). FFCRA established a temporary increase in the federal matching rate for Medicaid expenditures, provided states comply with certain conditions, including that they maintain enrollment of all individuals enrolled or determined eligible for Medicaid as of March 18, 2020, through the end of the month in which the COVID-19 public health emergency ends.
• Out-of-Pocket (10% share): Total out-of-pocket spending increased by 10.4% in 2021 following a decline of 2.6% in 2020. The increase in 2021 was driven by increased use of medical goods and services following a decrease in use in 2020 that resulted from the impact of the COVID-19 pandemic.

Health care spending in 2021 for the largest three services—hospital care, physician and clinical services, and retail prescription drugs—was as follows:

• Hospital Care (31% share): Spending for hospital care services increased 4.4% in 2021 to reach $1.3 trillion; however, this was a slower growth rate compared to the 6.2% growth experienced in 2020. The slower growth in 2021 reflected a substantial decrease in funding from federal programs, includingCOVID-19 relief.  Partially offsetting the slowdown in 2021, spending growth was higher than in 2020 for the major payers of hospital care services—Medicare, Medicaid, private health insurance, and out-of-pocket spending.
• Physician and Clinical Services (20% share): Spending on physician and clinical services increased 5.6% to $864.6 billion in 2021, down slightly from 6.6% growth in 2020. As with hospital care, this slower growth was largely due to a decline in funding from federal programs that provided COVID-19 relief. Similar to the spending trends for hospital care, spending growth for physician and clinical services accelerated in 2021 for the major payers – Medicare, Medicaid, private health insurance, and out-of-pocket spending.
• Retail Prescription Drugs (9% share):  Retail prescription drug spending increased 7.8% to $378.0 billion in 2021, a faster rate than in 2020 when spending increased by 3.7%. The acceleration in growth was due to an increase in the use of prescription drugs in 2021.

Sponsors of health care include estimates of spending by the businesses, households, other private funds and governments that are responsible for financing, or sponsoring, health care payments. Expenditures in these areas included:

• In 2021, the federal government and households accounted for the largest shares of national health spending (34% and 27%, respectively), followed by private businesses (17%), state and local governments (15%), and other private revenues (7%).
• Federal government spending declined 3.5% in 2021 compared to growth of 36.8 % in 2020. The decline in federal government health spending was driven by a reduction in federal COVID-19 funding, and to a lesser extent, a decrease in federal public health expenditures and slower growth in the federal portion of Medicaid payments.
• Health care spending by households experienced faster growth in 2021, increasing 6.1% after growth of 1.2% in 2020. This faster growth was due largely to household out-of-pocket expenditures, which accounted for 38% of household spending and increased 10.4% after a decline of 2.6% in 2020.
• Growth in state and local government health care spending rose 5.8% in 2021 following a decline of 1.9% in 2020. The growth in 2021 was driven primarily by a 4.6% increase in state and local Medicaid spending, which was 35% of state and local spending, after declining 7.0% in 2020.
• Spending on health care by private businesses increased 6.5% in 2021 after decreasing by 2.9% in 2020. The largest share of private business’ health spending was contributions to employer-sponsored private health insurance premiums (a 75% share), which grew 6.5% in 2021 after a 3.0% decline in 2020.

Previous versions of the NHE estimates have been revised to reflect the most recent and up-to-date source data that is available.

The 2021 National Health Expenditures data and supporting information will appear on the CMS website at:  https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsHistorical

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