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US Healthcare Spending Projected to Grow 5.5% Annually Through 2027

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Healthcare spending is expected to represent 19.4% of US GDP in 2027.

In February, the CMS Office of the Actuary released its projections of national health expenditures through 2027.

According to these projections, US healthcare spending reached $3.6 trillion in 2018. Between 2018 and 2027, healthcare spending is projected to increase by 5.5% annually. By 2027, national health spending is expected to reach almost $6 trillion, when it is projected to represent 19.4% of gross domestic product.

Figure 1. Projected US Healthcare Expenditures as a Percentage of GDP, 2018-2027

According to CMS, healthcare spending will be driven by economic and demographic factors, including increasing spending growth for hospital care and prescription drugs in Medicare, rising per-enrollee spending growth in Medicaid, and growth in incomes and employment.

Among the major payers, Medicare spending is expected to grow the fastest annually over the 10-year period at 7.4%. This compares to 5.5% growth expected for Medicaid and 4.8% growth for private health insurance over the same period. According to CMS, this is due to comparatively higher projected enrollment growth in Medicare, as baby boomers continue to age into the program.

Payer Trends

  • Medicare. Between 2018 and 2027, average spending is expected to grow by 7.4% annually. According to CMS, key drivers are faster per-enrollee growth (3.1% in 2018, compared to 1.7% in 2017), higher per-service payments (e.g., hospital care and prescription drugs), and increased fee-for-service payment rates.
  • Medicaid. Spending growth is projected to have slowed between 2017 and 2018, from 2.9% to 2.2%, but is expected to grow to 4.8% in 2019. Medicaid enrollment decelerated in 2018 compared to 2017 (1.1% and 2.0%, respectively), but is projected to increase by 2.4% in 2019 due to new states’ expansions, which is expected to be the key driver of increased national spending. Medicaid spending growth is projected to rise to 6.0% per year between 2020 and 2027.
  • Private insurance. Spending growth for private payers is projected to have accelerated slightly, from 4.2% in 2017 to 4.5% in 2018, and is expected to slow to 3.3% in 2019. CMS notes that this deceleration is partly due to the repeal of the tax penalty associated with the individual mandate, which is expected to lead to slight declines in private insurance enrollment. Between 2020 and 2027, private health insurance spending is projected to increase by an average of 5.1% per year.

To learn more about Avalere’s work on the drivers of national health spending, connect with us.

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