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Analysis

National Health Spending Growth Projected at 5.4% Annually through 2028

By John Commins  
   March 24, 2020

However, new estimates from federal actuaries do not project the cost implications of the coronavirus pandemic.

National health spending growth is expected to average 5.4% annually through 2028, outstripping the growth of the gross domestic product by 1.1 percentage points, reaching nearly $6 trillion a year, and consuming nearly 20% of the economy by then, according to federal actuaries.  

"As it has over the past several decades, health spending is expected to grow, on average, more rapidly than the rest of the economy," said Sean Keehan, an economist at CMS and lead author of the study, which was published today in Health Affairs.

However, the new estimates released today by the independent Office of the Actuary at the Centers for Medicare and Medicaid Services come with a critical caveat: They provide no cost estimates for the ongoing coronavirus pandemic.

A new analysis from FAIR Health estimates that the total costs for all hospitalized COVID-19 patients may range from a low of $362 billion in charges and $139 billion in estimated in-network amounts to a high of $1.449 trillion in charges and $558 billion in estimated in-network amounts.

The CMS actuaries' report projects healthcare spending growth to be driven primarily by healthcare sector wage growth, and an expected rebound in the prices for medical services and goods. Personal health care prices are expected to increase at an average rate of 2.4% during 2019–28 and to account for 43% of the total projected growth in personal health care spending over the period, CMS said.

“The government is projected to pay a larger share (nearly half) of the nation’s total health bill by 2028, as the baby boomers continue aging into Medicare and the program’s beneficiaries consume $1 out of every $4 spent on healthcare," Keehan said. "Policy makers and other stakeholders will undoubtedly continue to monitor these trends and their implications for the health sector, federal and state budgets, and the economy as a whole."

"This acceleration in price growth largely reflects faster expected growth in health-sector wages and follows the unusually slow rate of personal health care inflation observed in 2014–18, when price growth for medical goods and services was 1.2% and represented 25% of expenditure growth," the audit said.

For the decade ahead, Medicare's annual spending growth of 7.6% will outstrip Medicaid (5.5%) and private health insurance (4.8%) mostly because of higher enrollment throughout the decade as retiring baby boomers transition to Medicare, along with a 2.5% increases in medical goods prices through 2027.

COVID-19 Cost Estimates Vary Widely

The wide variance in the FAIR Health estimates depend on the incidence rate and severity of the infection in the U.S. population, with projections that 66 million to 198 million Americans may become infected with the virus, and that from 4.9 million to 19.8 million of them may require inpatient stays.

The total average charge per COVID-19 inpatient stay is estimated at $73,300 and the total average estimated in-network amount per commercially insured patient at $38,221, the analysis said.

Uncertainty ahead

Cori Uccello, a senior fellow at the American Academy of Actuaries, said the sudden and unforeseen onset of the coronavirus pandemic is wreaking havoc on cost projections.

"The pandemic and policy responses to it are evolving rapidly, bringing uncertainty to how total national health spending will be affected and how costs of care for 2020 will compare to what insurers anticipated when they set premium rates for the year," Uccello said.

"That uncertainty also applies to 2021 health spending projections, even as insurers are currently developing 2021 premiums," she said.

Uccello said factors affecting health spending include the ultimate hospitalization rate for COVID-19, access to COVID-19 treatments, and the degree to which increased spending for patients with COVID-19 will be offset by deferments or cancellations of nonessential services.

"These factors can vary by insurance market and geographic area," she said.

For example, Uccello said that  if COVID-19-related costs are concentrated in 2020, 2021 health spending might be affected only minimally.

However, if COVID-19 incidence and related costs are expected to continue into 2021, premiums for 2021 could be affected as well.

“As it has over the past several decades, health spending is expected to grow, on average, more rapidly than the rest of the economy.”

John Commins is a content specialist and online news editor for HealthLeaders, a Simplify Compliance brand.


KEY TAKEAWAYS

Healthcare spending growth is projected to be driven primarily by healthcare sector wage growth and an expected rebound in the prices for medical services and goods.

Personal healthcare prices are expected to increase at an average rate of 2.4% during 2019–28 and to account for 43% of the total projected growth in personal healthcare spending over the period.

Medicare's annual spending growth of 7.6% will outstrip Medicaid (5.5%) and private health insurance (4.8%), mostly because of higher enrollment throughout the decade as baby boomers continue to retire.

Meanwhile, a new analysis from FAIR Health estimates that the total costs for all hospitalized COVID-19 patients may range from $362 billion in charges and $139 billion in estimated in-network amounts to $1.449 trillion in charges and $558 billion in estimated in-network amounts.


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