Healthcare spending projections for the next decade reflect an expectation of steadying trends post-pandemic

CMS actuaries say the spending spike of 2020 will be tempered across sectors and payers in upcoming years.

Making predictions about healthcare economics is a dicey proposition amid the COVID-19 pandemic, but CMS actuaries have taken their best shot.

The actuaries released healthcare spending projections for the remainder of this decade, estimating that spending increases largely will moderate and return to something close to normal over the next couple of years.

By around 2024, “Economic and demographic factors are anticipated to reemerge as the most influential drivers of health-sector trends,” the actuaries wrote in their report, which was published March 28 in Health Affairs (login required) and for which the data are available on the CMS website.

The report includes estimates for 2021 and projections for all subsequent years through 2030 (final 2021 data won’t be available until late 2022).

Total healthcare spending is projected to increase by an average of 5.1% per year through 2030. That’s the same annual growth rate projected for GDP, meaning healthcare spending as a share of GDP would stay essentially flat at 19.6%.

The stability in those numbers is a marked change from 2020, when healthcare spending jumped by 9.7% and — with the overall economy simultaneously contracting — the share of GDP taken up by healthcare spending rose from 17.6% to 19.7%. With healthcare utilization declining, the big driver of the accelerated spending was federal funding through the Provider Relief Fund, Paycheck Protection Program and public health programs.

The spending outlook for the hospital sector

Hospital-based spending increases are projected to average 5.7% per year over the next decade.

The projection for 2021 likewise is 5.7%, which would be a notable decrease from 2020, when spending grew by 6.4%. The difference largely would stem from a decrease in federal COVID-19 relief funding.

In terms of Medicare, Medicaid and commercial insurance payments, however, spending on hospital services likely increased in 2021 due to “a partial rebound in use,” the actuaries wrote.

For 2022, with utilization continuing to rise and price growth accelerating, the spending increase is projected to surge back up to 6.9%.

Starting in 2023, the pandemic-related impacts on utilization are expected to fade, and spending growth will “normalize” at 5.6% per year.

Similar patterns are expected in spending on physician and clinical services, with a projected annual average of 5.6% over the decade.

Medicare likely to drive significant spending

Medicare spending growth is projected to be the largest among the major payers, at 7.2% per year during the decade. The biggest year of growth is expected to be 2021, with spending rising by 11.3% amid a likely acceleration in utilization growth.

The increase should drop to 7.5% this year, reflecting more-moderate changes in utilization, lower fee-for-service payment rate updates and the restoration of the Medicare payment sequester (which is scheduled to be phased back in at 1% on April 1 and then increase to 2% on July 1).

In 2030, Medicare spending is predicted to increase by only 4.3% in part because baby boomers will no longer be enrolling.

Medicaid spending will follow a similar pattern, leveling off at a 5.6% annual growth rate after accelerating to 10.4% in 2021 and then slowing to 5.7% and 2.7%, respectively, this year and next. The sizable drop-off will result from the anticipated end of the COVID-19 public health emergency, at which point maintenance-of-eligibility provisions will expire.

Growth in Medicaid spending is projected to pick back up during the second half of the decade, with the Affordable Care Act’s DSH payment cap reductions scheduled to expire in late 2027.

Commercial health plan spending growth is projected to average 5.7% per year. Higher growth — 6.3% in 2021 and 8.3% this year — during the early years of the decade is being driven by a rebound in utilization.  Over the second half of the decade, growth in that category is expected to decelerate to 4.8% due in part to slowing income growth in the years prior.

Out-of-pocket spending is projected to grow by 4.6% per year over the decade and represent 9% of total spending in 2030. That’s down from 9.4% in 2020, which marked a historic low.