U.S. Healthcare Spending Up 7.5%, Nears $5T

CMS attributes the rapid growth in 2023 to "non-price factors" including the use and intensity of healthcare services.

The nation's healthcare expenditures hit $4.9 trillion in 2023, increasing by 7.5%, up sharply from recent post-COVID annual expenditures and rising to $14,570 per person, federal actuaries reported Wednesday.

The analysis by the Office of the Actuary at the Centers for Medicare and Medicaid Services, published online Wednesday in Health Affairs, showed that growth in 2023 was markedly higher than the post-COVID 4.6% rate of growth in 2022, and 4.6% in 2021, but also well below the 10.6% growth in 2020 when the coronavirus pandemic raged.

Healthcare’s share of the economy was 17.6% in 2023, in line with 17.4% in 2022, but lower than during the pandemic years in 2020 and 2021. 

CMS attributed the accelerated growth in 2023 to "non-price factors," including the use and intensity of healthcare services that were made available owing to strong enrollment in commercial insurance and Medicaid, with 92.5% of the U.S. population covered.

When adjusted for inflation, using the National Health Expenditure deflator, real healthcare spending increased 4.4% in 2023—up from 4.1% in 2022 and higher than the growth rate of 2.9% of the gross domestic product in 2023.

The overall GDP grew 6.6% in 2023, after dramatic volatility during the pandemic that saw the GDP shrink by 0.9% in 2020, followed by increases of 10.9% and 9.8% in 2021 and 2022, respectively. Even with that volatility in both healthcare spending and GDP growth, CMS notes that the growth rates were similar during 2020–23, at 6.6% per year and 6.5% per year, respectively.

Of the $14,570 in per person health spending in 2023, CMS says the federal government accounted for 32% ($4,689 per person). Households paid for 27% ($3,942 per person), private businesses accounted for 18% ($2,677 per person), state and local governments another 16% ($2,279 per person), and other private revenues the remaining 7% ($983 per person)

Spending by Source of Funds

• Private Health Insurance (30% share): Spending for private health insurance reached $1.5 trillion in 2023 and increased 11.5%. The robust growth in 2023 was driven by increased enrollment in Marketplace and employer-sponsored private health insurance plans, strong growth in spending for goods and services, and strong growth in the net cost of insurance. In 2023, enrollment in private health insurance increased 1.6%, or by 3.3 million individuals. 

• Medicare (21% share): Medicare spending reached $1 trillion in 2023, increasing 8.1% following 6.4% growth in 2022. This faster growth was driven by a turnaround in traditional fee-for-service spending growth (from a decline of 1.4% in 2022 to an increase of 1.7% in 2023). Medicare Advantage private plan spending continued to experience rapid growth (increasing 14.7% in 2023 following 15.7% growth in 2022) and accounted for 52% of total Medicare expenditures in 2023 (from a 39% share in 2019). Total Medicare enrollment grew 2.1% in 2023, a slight acceleration from 2022 when enrollment increased 1.9%. 

• Medicaid (18% share): Medicaid spending increased 7.9% to $871.7 billion in 2023, a slower growth rate than in 2022 (9.7%) and 2021 (9.5%). In 2023, Medicaid enrollment increased 0.8%, following growth of 7.5% in 2022, and reached 91.7 million, even as states resumed the re-determination of Medicaid eligibility (also referred to as “unwinding”) following the end of pandemic-era coverage protections. 

• Out-of-Pocket (10% share): Total out-of-pocket spending increased by 7.2% in 2023 to $505.7 billion, a slight acceleration from growth of 6.9% in 2022. Hospital care, physician and clinical services, and nursing care facilities and continuing care retirement communities, which collectively accounted for 33% of all out-of-pocket spending in 2023, were the main contributors to the faster growth in 2023. 

Spending by Service or Product

• Hospital Care (31% share): Spending for hospital care services increased 10.4% in 2023 to reach $1.5 trillion. This rate of growth was the fastest since 1990, when hospital spending increased 10.8%. Faster growth in 2023 was driven by non-price factors (which include the use and intensity of services), with an increased number of hospital discharges and increased Medicare outpatient hospital utilization.  

• Physician and Clinical Services (20% share): Spending for physician and clinical services increased 7.4% to $978 billion in 2023, which was faster than the growth rate of 4.6% in 2022. Faster growth in 2023 was driven by non-price factors (which includes use and intensity of services), while price growth remained low at 0.6%.  

• Retail Prescription Drugs (9% share): Retail prescription drug spending increased 11.4% to $449.7 billion in 2023, accelerating from a rate of 7.8% in 2022. The rapid growth in spending for drugs used to treat diabetes and obesity contributed to faster overall growth in retail prescription drug expenditures.