Health Inflation Hit 7.5% in 2023; Hospital Costs Surge: CMS
TL/DR –
CMS Analysts reported that healthcare inflation in the US rose to 7.5% in 2023, with hospital cost inflation jumping from 3.2% in 2022 to 10.4% in 2023 and total healthcare spending reaching $4.9 trillion. The growth in health spending is attributed to several factors such as an increase in nonprice factors like the use and intensity of services, a growth in private health insurance enrollment, and higher spending on hospital care services and prescription drugs. Despite the rise in healthcare spending, the healthcare sector’s share of the economy was 17.6% in 2023, similar to its share in 2019 before the pandemic.
Analysis Reveals Significant Increase in 2023 Healthcare Inflation
A recent analysis by CMS Analysts highlighted a considerable rise in healthcare inflation in 2023, with hospital cost inflation jumping from 3.2% in 2022 to 10.4% in 2023. The study published in Health Affairs also showed that U.S. healthcare inflation rose to 7.5%, significantly above the 4.6% in the previous year, and total healthcare spending reached $4.9 trillion.
Factors Contributing to the Surge in Healthcare Spending
The study authors note that 2023 saw a substantial increase in the insured share of the population, reaching 92.5% due to strong growth in private health insurance. As the COVID-19 public health emergency ended, Medicaid spending and enrollment growth slowed. Despite this, the health sector’s share of the economy remained nearly the same at 17.6%, compared to 17.4% in 2022.
Influence of Economic Growth on Healthcare Spending
In 2023, gross domestic product (GDP) increased by 6.6%, influencing healthcare spending. The growth rates for healthcare spending and GDP have been similar on average from 2020 to 2023 (6.6% and 6.5% respectively). This resulted in healthcare spending constituting 17.6% of the GDP in 2023, almost identical to the pre-pandemic share in 2019 (17.5%).
Driving Factors Behind Increased Spending
Key factors behind the increased healthcare spending included growth in nonprice factors such as the use and intensity of services. After adjusting for healthcare price inflation, real healthcare spending increased by 4.4% in 2023. There was strong growth in private health insurance enrollment, particularly due to rapid growth in Affordable Care Act Marketplace enrollment, which saw an increase of 5.8 million enrollees from 2020 to 2023.
Marked Increase in Private Health Insurance and Medicare Spending
Healthcare spending in 2023 saw a significant acceleration, driven primarily by private health insurance spending, which saw an increase of 11.5%, compared to 6.8% in 2022. Medicare spending also reported faster growth, increasing by 8.1% in 2023 from 6.4% in 2022. In contrast, Medicaid’s spending growth slowed from 9.7% to 7.9% as the Medicaid continuous enrollment provision ended on March 31, 2023.
Sharp Rise in Hospital, Physician and Prescription Drug Costs
The CMS analysts also found that the increase in total national health spending growth in 2023 was primarily driven by faster growth in hospital care, physician and clinical services, and retail prescription drugs. Hospital spending increased by 10.4% in 2023, spending for physician and clinical services grew by 7.4%, and retail prescription drug spending rose by 11.4%, predominantly due to changes in the mix of drugs dispensed towards higher-cost, newer brand-name drugs.
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