New estimates released today from the Office of the Actuary (OACT) at the Centers for Medicare and Medicaid Services (CMS) and published online in Health Affairs project a rate of national health spending growth of 4.2 percent for 2021, reaching nearly $4.3 trillion, after the 9.7 percent growth seen in 2020 that was driven by large inflows of federal supplemental funding to mitigate the impacts of the COVID-19 pandemic on the health sector. Average rates of health spending growth of 4.9 percent and 5.3 percent are projected for 2022–24 and 2025–30, respectively.

After the declines observed in 2020, health care utilization is expected to rebound starting in 2021 and normalize through 2024. In addition, by 2024 the government share of health spending is expected to fall to 46 percent, down from an all-time high of 51 percent in 2020, as COVID-19 supplemental funding is expected to wane.

Economic growth is expected to outpace growth in national health spending in the early portion of the projection period, resulting in a drop in the health share of the economy from 19.7 percent in 2020 to 18.2 percent by 2022 (approximately where it is expected to remain through 2024). Over the course of 2025–30, the average annual growth in national health expenditures is projected to exceed that of the overall economy, which is expected to result in a health share of the economy of 19.6 percent by 2030.

This study will also appear in the April 2022 issue of Health Affairs. The link to the study abstract, once the embargo lifts, will be: https://health-policy.healthaffairs.org/april2022issue/poisal

“While there is still considerable uncertainty around the COVID-19 pandemic, its related health and economic impacts are projected to lessen in the next few years,” says John Poisal, deputy director for National Health Statistics Group in CMS and first author of the Health Affairs study. “From 2025 onward, we expect economic and demographic factors to reemerge as the most influential drivers of health sector spending trends.”

Spending for public health activity and other federal programs related to the pandemic is projected to have fallen sharply in 2021 (down to $286.8 billion versus $417.6 billion in 2020) after the massive 2020 inflows from the Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020 and other legislation.

Declining total federal COVID-19 funding is also expected to have resulted in slower hospital spending growth (5.7 percent) and physician and clinical services spending growth (5.1 percent) in 2021. Spending rates for both sectors are expected to accelerate substantially in 2022 (6.9 percent for hospital services and 6.2 percent for physician and clinical services) as demand for services rebounds, and for hospital spending, there will be an additional projected acceleration in price growth. Spending growth is projected to then stabilize for both hospital and physician and clinical services at an average of 5.5 percent each for 2025–30, in part as a result of slower private insurance spending in lagged response to slowing rates of income growth earlier in the projection period.

Retail prescription drug spending growth is expected to have accelerated to 4.7 percent in 2021, up from 3.0 percent in 2020, associated with higher projected Medicaid drug spending resulting from increases in enrollment. Growth in retail prescription drug spending is expected to slow to 4.3 percent in 2022, driven by slowing growth in Medicaid, as that program’s enrollment is expected to decline. Overall national health expenditure growth is projected to accelerate slightly to 4.9 percent on average for 2023–24 as a result of faster expected drug price growth and faster increases in the use and intensity of prescription drugs, and then to average 5.2 percent over the course of 2025–30, reflecting higher price growth and the impacts of new pharmaceutical launches.

Among the major payers of health care, average annual spending growth in Medicare is expected to have increased to 11.3 percent in 2021, to $923.0 billion, from 3.5 percent growth in 2020 as a result of faster projected growth in personal health care spending. Spending growth for Medicare is then expected to slow to 7.5 percent in 2022, and then further to 5.9 percent in 2023, as a result of slowing projected rates of growth in use and intensity of services. For the 2025–30 period, spending growth is expected to average 6.8 percent—a rate similar to its longer-term norms. This rate is also influenced by scheduled increases in sequestration cuts and the slowest projected enrollment growth since 2004 as the last baby boomers enter the program in 2029.

Medicaid spending growth is similarly expected to have accelerated in 2021, to 10.4 percent ($740.8 billion), up from 9.2 percent growth in 2020, as a result of faster projected enrollment growth (8.2 percent). Spending growth is expected to slow in 2022, to 5.7 percent, and then drop to 2.7 percent growth in 2023, as states are expected to trim enrollment after the assumed end of the public health emergency and, along with it, the Families First Coronavirus Response Act of 2020’s maintenance-of-eligibility provision, which provided an incentive to states in the form of an increased federal medical assistance percentage to not initiate disenrollments while the public health emergency was in effect. The 2025–30 average spending growth rate for Medicaid is expected to accelerate to 5.6 percent, in part as a result of the expiration of the disproportionate share hospital payment cap reductions in 2027.

Private health insurance spending is expected to have grown rapidly, at 6.3 percent in 2021, after growth of ?1.2 percent in 2020, because of the greater use of medical goods and services after pandemic-related declines. Overall private health insurance enrollment is also anticipated to have increased in 2021 after the economic and employment disturbances the year prior (0.8 percent growth in 2021 after a decline of 0.8 percent in 2020), related to the Marketplace special enrollment period. Private health insurance spending growth is expected to accelerate to 8.3 percent in 2022, driven by growing demand, and then slow to 7.1 percent and 6.2 percent in 2023 and 2024, respectively. During 2025–30, private health insurance spending growth is expected to slow to 4.8 percent in lagged response to earlier slowing projected income growth.

The percentage of the population with health insurance is expected to peak in 2022 at 91.1 percent (mainly as a result of Medicaid enrollment) before falling back toward prepandemic levels as the public health emergency is assumed to end. The 2030 rate is projected to be 90.5 percent.

On a regular basis, CMS OACT releases an analysis based on current law of how Americans are expected to spend their health care dollars in the years ahead. The projected growth rates for national health spending over the course of 2021–30 reflects the latest expectations from OACT and updates its 2020 report, which covered 2019–28, published in March 2020 and appearing in the April 2020 issue of Health Affairs.