How much is health spending expected to grow?

This chart collection explores how health spending is expected to grow in coming years, based on National Health Expenditure projections from federal actuaries. A related chart collection explores how health spending has changed over time using historical data and an interactive tool allows users to explore spending changes over time.  

Health spending increased substantially in 2020, but is expected to grow moderately over time

Health spending grew rapidly in 2020, at a rate of 9.3% per capita from the prior year. Most of this growth was due to government spending on public health activities and other pandemic relief. Spending on public health, for example, grew 113%. While government spending grew rapidly, private insurance spending and out-of-pocket spending fell by record amounts.

Each year, actuaries from the Centers for Medicare and Medicaid Services (CMS) project future spending on health. Looking ahead to the coming years, there remains a great deal of uncertainty around the future need for acute COVID-19 treatment, vaccinations or boosters, and the long-term health effects of the virus. New variants and new treatments add even more uncertainty.

Additionally, the pandemic has had indirect effects on the health system that make projections difficult. COVID-19 has led to new costs for testing and treatment, but has also caused other shifts in health spending. Some people missed or delayed routine care or cancer screenings earlier in the pandemic, for example, which could lead to pent-up demand for missed care, worsening health conditions, or more complex disease management going forward. New ways of delivering care, such as through telemedicine, could also shift spending patterns in the future.

Further, the recent broad-based inflation trends in the economy and health sector employment trends also add to the uncertainty of these projections.

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With all this uncertainty, the CMS actuaries expect health spending to return to more normal growth rates in the coming years. They project that per capita health spending will grow at a rate of 4.5% on average from 2021 to 2030.

Growth in prescription drug spending slowed in 2020 but is expected to increase again

Prescription drug spending grew 2.7% per capita from 2019 to 2020. Medicaid drug spending is expected to drive prescription drug spending growth in the next few years, as increased Medicaid enrollment boosts drug spending growth to 4.6% per capita in 2021. Growth in drug spending is projected to slow to 3.9% per capita in 2022, as Medicaid enrollment declines.

Looking ahead, CMS projects growth in per capita drug spending will be moderate from 2021 through 2030, averaging 4.3% per year. However, pandemic-related factors, such as the future need for COVID-19 vaccinations or boosters and newly developing therapeutics, contribute to uncertainty around projections of prescription drug spending. 

Out-of-pocket spending dropped in 2020 but may increase in the future

Out-of-pocket spending decreased 4.0% per capita in 2020 from the previous year, due in part to people delaying or going without routine care during the early stages of the pandemic. Additionally, although COVID-19 treatment can be very expensive, most insurers waived out-of-pocket costs for these hospitalizations for at least part of 2020. Other COVID-19 related services like testing (and eventually vaccination) were also generally available without cost-sharing. 

Looking ahead, CMS actuaries expect per capita out-of-pocket spending growth to rebound, at a rate of 4.4% in 2021 and 5.7% in 2022, and average 3.5% for the following seven years.

Physician and hospital services are projected to drive out-of-pocket spending growth

Spending on all three types of services is expected to increase from 2021 to 2030. Hospital services spending is projected to increase the most, at an average rate of 5.0% per year. Spending on physician and clinical services is projected to increase by 4.6% annually between 2021-2030, while prescription drug spending is only expected to increase an average of 2.0% per year.

In 2020, per capita out-of-pocket spending on prescription drugs decreased slightly from the previous year (from $148 to $141 per person). Out-of-pocket spending on physician and clinical services also decreased slightly (from $188 per person in 2019 to $181 in 2020), as did hospital out-of-pocket spending (from $113 per person in 2019 to $99 in 2020). As discussed above, this decline in out-of-pocket spending is largely due to delayed or forgone medical care, but also influenced by waived out-of-pocket costs for COVID-19 treatment.

Health spending projections are always difficult and are even more so currently

The COVID-19 pandemic makes projections of health spending even more difficult than in normal years, and even small differences in growth rates can add up to large spending differences over time. Volatile economic conditions, such as periods of inflation, can also impact the cost of health services.

What may seem to be small differences in spending growth rates are very meaningful over time. Per capita health expenditures are projected to grow from $13,037 in 2021 to $19,294 in 2030, which is an average annual growth rate of 4.5 percent. If growth rates end up being 1 percentage point lower each year over that same period, per capita spending would be $1,770 lower than expected in 2030. If growth rates end up being 1 percentage point higher each year, spending would rise to $21,224 per person in 2030.

Health spending projections are now somewhat lower than some previous projections

Health spending is now lower than CMS actuaries had previously projected. In 2010, they projected health spending would reach $4.64 trillion by 2020. In 2015, CMS actuaries projected estimated health spending in 2020 would hit $4.20 trillion. However, by 2020, actual health spending was recorded at $4.12 trillion. This difference between estimated and true spending values for 2020 is at least partially due to the slowdown in health expenditure growth – the national health expenditure grew at a larger annual average rate between 2000 and 2009 than it did between 2010 and 2019.

The Peterson Center on Healthcare and KFF are partnering to monitor how well the U.S. healthcare system is performing in terms of quality and cost.

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