TL/DR –
CMS actuaries predict a moderate rise in per capita health spending over the next decade, with growth rates slowing due to factors like the Inflation Reduction Act and the unwinding of Medicaid. Medicare spending per enrollee is expected to slow between 2025 and 2032, and the ongoing Medicaid unwinding process will likely increase spending per enrollee. Lastly, total spending on physicians and clinics is expected to decrease and then moderate at a slightly higher level, while per capita out-of-pocket spending across all services is expected to increase until 2032.
CMS Predicts Gradual Rise in Per Capita Health Spending
Per capita health spending is expected to increase moderately over the next decade, according to a recent forecast by CMS actuaries. This increase, however, will initially slow down due to factors such as the Inflation Reduction Act (IRA) and the unwinding of Medicaid source.
Projected Growth Rates in Health Spending
Growth rates are predicted to dip from 4.5% in 2024 to 4.2% in 2025, then rebound to 4.3% in 2026. The average growth rate between 2027 to 2032 is expected to stay around 5%. This dip in 2026 is attributed to the IRA’s Medicare drug price reforms.
Impacts of the Inflation Reduction Act
The IRA’s introduction of Medicare drug price reforms is expected to save Medicare enrollees an estimated $1.5 billion. These reforms are also anticipated to increase pressure on out-of-pocket costs and Medicare, leading to lower prices overall. The unpredictability of prescription drug spending hinges on the development of new drugs for common diseases.
Out-of-pocket Spending and Medicare
Out-of-pocket spending is set to average a 3.5% growth between 2025 and 2032. The IRA’s Medicare prescription drug benefit changes are expected to further affect out-of-pocket spending, with the elimination of the 5% coinsurance component for catastrophic coverage and the introduction of a $2000 cap on Part D out-of-pocket spending.
Ongoing Medicaid Unwinding
The ongoing Medicaid unwinding process, which began in 2023, has led to approximately 25 million disenrollments across all states. This has resulted in an increased spending per enrollee as younger and healthier beneficiaries lose their coverage.
Projections for the Private Insurance Market and Hospital Expenses
The growth of spending in the private insurance market is predicted to decrease to an average of 4.9% in 2025 and 2026. Meanwhile, hospital expenses will slow to 4.6% in 2024 and remain stable for the next two years. Physician and clinic costs are expected to decrease before moderating at a slightly higher level.
Impact on Out-of-pocket Spending
Increases are expected in out-of-pocket spending across all services until 2032. Out-of-pocket hospital services and physician, and clinical services are projected to increase by 2.9% and 3.5% annually, respectively. Prescription drug out-of-pocket spending is projected to increase by 3.3% between 2024 and 2032.
Health Spending vs. Economic Growth
Health care spending is projected to outstrip economic growth starting in 2025, reaching 19.7% of the gross domestic product by 2032. These predictions, however, are based on current circumstances and could be affected by factors such as changes in health employment and inflation.
Projected Health Expenditures
Per capita health expenditures are projected to increase by 5% per year, rising from $14,423 in 2023 to $21,927 by 2032. Total health expenditures are now estimated to be $2 trillion lower than projected in 2010 and $780 billion less than projected in 2015.
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