CMS Office of the Actuary Releases 2022-2031 National Health Expenditure Projections

The Centers for Medicare & Medicaid Services’ (CMS) Office of the Actuary released projections of National Health Expenditures (NHE) and health insurance enrollment for the years 2022-2031. The report contains expected impacts from the Inflation Reduction Act (IRA), including that people with Medicare prescription drug coverage (Part D) are projected to experience lower out-of-pocket spending on prescription drugs for 2024 and beyond as several provisions from the law begin to take effect.

CMS projects that over 2022-2031, average annual growth in NHE (5.4%) will outpace average annual growth in gross domestic product (GDP) (4.6%), resulting in an increase in the health spending share of GDP from 18.3% in 2021 to 19.6% in 2031. The insured percentage of the population is projected to have reached a historic high of 92.3% in 2022 (due to high Medicaid enrollment and gains in Marketplace coverage). It is expected to remain at that rate through 2023. Given the expiration of the Medicaid continuous enrollment condition on March 31, 2023 and the resumption of Medicaid redeterminations, Medicaid enrollment is projected to fall over 2023-2025, most notably in 2024, with an expected net loss in enrollment of 8 million beneficiaries. If current law provisions in the Affordable Care Act are allowed to expire at the end of 2025, the insured share of the population is projected to be 91.2%.  In 2031, the insured share of the population is projected to be 90.5%, similar to pre-pandemic levels.

The NHE is published annually and is often referred to as the “official” estimates of U.S. health spending and health insurance enrollment. The historical and projected estimates of NHE measure total annual U.S. spending for the delivery of health care goods and services by type of good or service (hospital, physician, prescription drugs, etc.) and by payer (private health insurance (PHI), Medicare, Medicaid, etc.).

Selected highlights on the IRA as well as NHE spending by major payer include:

Inflation Reduction Act (IRA) on Medicare Part D Enrollees: Several provisions from the IRA are expected to result in out-of-pocket savings for individuals enrolled in Medicare Part D.

Those include:

1. Limitations on price increases for Part D drugs beginning in 2023;
2. elimination of the cost-sharing requirement in the Part D catastrophic phase (typically 5% beneficiary coinsurance) starting in 2024;
3. implementation of a $2,000 annual cap on out-of-pocket spending on drugs under Part D beginning in 2025; and
4. reduced prices for certain high-cost drugs through negotiation resulting in lower out-of-pocket payments beginning in 2026. 

These provisions have notable effects on the growth rates for total out-of-pocket spending for prescription drugs, which are projected to decline by 5.9% in 2024, 4.2% in 2025, and 0.2% in 2026.

Medicare: Average annual expenditure growth of 7.5% is projected for Medicare over 2022-2031. In 2022, the combination of fee-for-service beneficiaries utilizing emergent hospital care at lower rates and the reinstatement of payment rate cuts associated with the Medicare Sequester Relief Act of 2022 resulted in slower Medicare spending growth of 4.8% (down from 8.4% in 2021). In 2025, Medicare spending is projected to grow 8.9%, reflecting the effect of the IRA’s cap ($2,000 in 2025) on out-of-pocket spending for Part D enrollees and the associated shift in responsibility for those payments that exceed the cap from the beneficiaries to the program. Projected Medicare spending growth slows to 6.8% in 2030 and 2031, associated with the IRA’s provisions related to drug price negotiations and inflation rebates, as well as slower enrollment growth as the last of the demographic cohort known as the baby boomer generation (those born between 1946-1964) enrolls in 2029.  

Medicaid: On average, over 2022-2031, Medicaid expenditures are projected to grow by five percent. With the end of the continuous enrollment condition in 2023, Medicaid enrollment is projected to decline over 2023-2025, with most of the net loss in enrollment (eight million) occurring in 2024 as states resume annual Medicaid redeterminations. Medicaid enrollment is expected to increase and average less than one percent through 2031, with average expenditure growth of 5.6% over 2025-2031.  

Private Health Insurance: Over 2022-2031, private health insurance spending growth is projected to average 5.4%. Despite faster growth in private health insurance enrollment in 2022 (led by increases in Marketplace enrollment related to the American Rescue Plan Act’s subsidies), private health insurance expenditures are expected to have risen three percent (compared to 5.8% in 2021) due to lower utilization growth, especially for hospital services. Faster projected growth in utilization and health care prices in 2023 leads to a 7.7% increase in private health insurance spending. In 2026, private health insurance spending is expected to be impacted by the expiration of enhanced subsidies for Marketplace plans and the associated 10% decline for those enrolled in directly-purchased insurance that year.  

The Office of the Actuary’s 2022-2031 projections will be published at cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsProjected.html

A Health Affairs journal article from CMS’ Office of the Actuary is available at healthaffairs.org/. To view the Health Affairs’ study on these projections, you can do so at healthaffairs.org/doi/full/10.1377/hlthaff.2023.00403.