5.4% Yearly Health Spending Growth Expected Through 2031

The national healthcare expenditure topped $4.4 trillion in 2022.

Now may be the time to assess your organization’s financial future as healthcare spending is growing, so much so that the United States spent $4.4 trillion on healthcare in 2022, a growth rate of about 4.3%, according to a federal estimate released today. 

That rate of growth is projected to average 5.4% annually through 2031, according to Centers for Medicare and Medicaid Services’ (CMS) estimates put forward in a new study published in Health Affairs. 

Despite that robust rate of growth, healthcare spending in 2022 is not expected to keep pace with overall economic growth in the United States, and healthcare’s share of the gross domestic product in 2022 is expected to fall from 18.3% to 17.4%, CMS says.

However, that trend is not expected to last. GDP growth through 2031 is projected to average 4.6% annually—0.8% lower than the average growth in national health expenditures—which means that health spending will hit 19.6% of GDP by 2031, CMS says.

“Altogether, and consistent with its past trend, health spending for the next ten years is expected to grow more rapidly, on average, than the overall economy,” says Sean Keehan, an economist in the Office of the Actuary at CMS, and the Health Affairs study’s first author.

The projections could spell trouble for providers.

As we know, when national health spending growth increases, reimbursement rates may not keep up, which means hospital leaders may have increased expenses while receiving less revenue. Now is the time to consider strategic decisions regarding the allocation of resources, managing expenses, and revenue growth.

CMS also says Medicare spending growth is projected to accelerate from 4.8% in 2022 to 8% in 2023, with expenditures expected to exceed $1 trillion, despite the end of the public health emergency in 2023 and the associated expirations of the skilled nursing facility 3-day rule waiver and the 20% payment increase for inpatient COVID-19 admissions. 

Payers will be feeling the squeeze as well. Among the major payers, Medicare spending is expected to grow the fastest over the course of 2022-201 as the last of the baby boomers enroll in the program through 2029, the report says.

Private health insurance spending is expected to grow 5.4% annually, whereas Medicaid’s average rate of spending growth is projected to be 5.0% during the same period. 

Hospital spending is expected to grow more quickly on average (5.8%) than average spending growth for physician and clinical services (5.3%), and prescription drugs (4.6%) during this timeframe. 

Similarly, the report says the average price growth for hospitals (3.2%) is projected to be greater than that of prescription drugs (2.2%) and physician and clinical services (2.0%). 

According to the report, businesses, households, and other private revenues are expected to pay the same proportion of total health spending in 2031 as they did in 2021 (51%). Government spending is projected to account for the remaining 49% (also the same as 2021). Before the pandemic, in 2019, those shares were 54% and 46%, respectively.