The Healthcare Market is Expected to Skyrocket in the Next Decade After a Decline Following the PHE

Healthcare spending is expected to grow 5.4% per year through 2031. © onephoto - stock.adobe.com

The healthcare market is expected to reach the trillions in spending within the next decade now that any aid from the expired COVID-19 public health emergency (PHE) has come to an end.

According to a report conducted by the Centers for Medicare and Medicaid Services (CMS) Office of the Actuary (OACT) and published early this month in Health Affairs, researchers projected healthcare spending growth to pick back up and reach $7.2 trillion by 2031.

The OACT projection spans from 2022 to 2031. Over the course of the full projection period, researchers expect spending to grow 5.4% per year, outpacing projected average growth in nominal gross domestic product (GDP) of 4.6% per year and resulting in a spending share of GDP of 19.6% by 2031.

In 2022, healthcare spending grew by 4.3% in 2022. This was an increase following the 2.7% growth rate in 2021.

To get an idea of what’s to come, the OACT produced national health expenditure projections using actuarial and econometric modeling methods. The projections are clear based on judgment of factors that may affect future health spending and health insurance enrollment, they also reflect current law at the time of estimation. Projections rely on economic and demographic assumptions from the 2023 Medicare Trustees Report, as well as updated near-term macroeconomic data, the report said.

Researchers claim it’s crucial to note there is uncertainty associated with these projections. Though, it’s no secret recent legislation is expected to affect trends in health insurance enrollment and, of course, healthcare spending over the the next decade.

For example, the expiration of the PHE is expected to result in reductions to Medicaid enrollment through 2025 — potentially falling to 81.1 million by then after reaching its peak of 90.4 million in 2022.

The expiration is also expected to result in increases in enrollment in private health insurance from Marketplace subsidies through 2025, as well as increase effects on provider payments for Medicare — most notably the expiration of the add-on payment for COVID-19-related admissions, the report claimed.

In addition, the Inflation Reduction Act (IRA) of 2022 affected the Medicare Part D benefit by reducing the Part D program’s cost-sharing arrangements, requiring the HHS to negotiate prices for certain high-cost drugs, and linking certain drug price increases to growth in the Consumer Price Index (CPI). Overall, the IRA is expected to have a small but mighty influence on Medicare spending trends and decrease out-of-pocket spending by reducing cost sharing for beneficiaries.

This year, rates of the insured population were anticipated to exceed 92% as a result of record-high Medicaid enrollment, and then decline to 90% as coverage under the PHE expired. However, for major payers, Medicare is expected to make a comeback and grow the fastest over the course of the projection period, averaging 7.5% per year.

Growth in Medicare enrollment is partly attributable to the last of the baby boomers enrolling through 2029. In addition, legislative provisions associated with the PHE affect private health insurance and Medicaid, which are anticipated to grow 5.4% and 5% over the entire projection period. Lastly, growth in out-of-pocket payments is expected to average 4.3% over the projection period and is affected by the savings to Medicare beneficiaries associated with the Part D provisions of the IRA, the report said.

Hospital spending is also expected to grow more at about 5.8% over spending both for physician and clinical services at 5.3%, and for prescription drugs at 4.6%. The average price growth for hospitals (3.2%) is expected to outpace that of physician and clinical services (2%) and prescription drugs (2.2%).

Overall, healthcare spending by 2031 is expected to be the same as it was in 2021, according to the report. Businesses, households, and other private revenues are expected to sponsor 51% of spending as governments are anticipated to sponsor the remaining 49%. The federal government is also expected to cover roughly two-thirds of government spending.