Health spending expected to outpace growth in the overall economy

A recent report from the Centers for Medicare and Medicaid Services (CMS) shows that per capita health spending slowed in 2021. The growth rate was 2.6% down from 9.9% in 2020, after a ramp-up that year due to the COVID-19 pandemic.

As utilization returns to pre-pandemic levels and price inflation in the health sector abates somewhat, per person health spending is projected to rebound to an annual rate of 4.8% per capita from 2022 to 2031, which is slightly above pre-pandemic growth rates, which averaged to 3.9% from 2014 to 2019.

Prescription drug spending grew 7.7% per capita from 2020 to 2021. Increases in Medicaid prescription drug spending drove overall per capita prescription drug spending growth during the pandemic, largely due to increases in Medicaid enrollment. However, in 2022, slower Medicaid enrollment growth is expected to have slowed growth to 4.7% per capita. Growth in drug spending is projected to slow to 2.8% per capita in 2023, as Medicaid enrolment declines

Medicare prescription drug spending is also expected to slow as generic drugs enter the market for some drug categories and Inflation Reduction Act Medicare drug price reforms take effect.

With care resuming after the first year of the pandemic, out-of-pocket spending per capita also rebounded – rising by 10.3% in 2021 from 2020. Out-of-pocket spending per person declined from $1,229 in 2019 to $1,192 in 2020, followed by a rebound to $1,315 in 2021. CMS actuaries expect growth in per capita out-of-pocket spending to moderate in coming years. Out-of-pocket spending is expected to have grown by 3.8% per capita in 2022 and 4.4% per capita in 2023, but to drop to an average of 3.4% per capita for the following seven years.

Across all payers, per enrollee spending is projected to accelerate in 2023 and 2024. Growth in per enrollee Medicare spending is estimated to have slowed in 2022 to 3.1%, but is expected to rebound in 2023, partly driven by return in hospital use after a decrease in 2022. Per enrollee Medicaid spending is expected to grow by 7.4% in 2024, the highest rate in 30 years.

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In the years leading up to the pandemic, the share of gross domestic product (GDP) constituting health care hovered around 17.6%. In 2020, when health spending surged as the overall economy slowed, this share climbed to 19.7% of GDP. In 2021, health expenditures as a share of GDP fell to 18.3% as health spending grew much slower than GDP. Health spending is estimated to have grown more slowly than the economy in 2022 and is estimated to have returned to pre-pandemic levels (17.4% of GDP). However, health spending growth is expected to outpace growth in the overall economy starting in 2023 and eventually hit 19.6% of GDP by 2031.