Hospital, Prescription Drug Spending Fuel Big Jump in U.S. Healthcare Spending

U.S. healthcare spending increased by 7.5% in 2023 from the previous year — the largest annual jump in the past seven years aside from the COVID-19 spike of 2020 — fueled, in part, by largest percentage increase in spending on hospital-based care since 1990, according to the annual report national healthcare expenditure prepared byCMS actuaries that was released today.

The CMS national health expenditure report, which was posted on the CMS website and published as an article in Health Affairs, also says the percentage increase in spending on private health insurance was the largest since 1990, increasing by 11.5% from amount spent in 2022. The CMS actuaries traced the spike in spending on private insuranc, in part, to enhanced premium subsidies for the ACA marketplace plans, which in turn lead to increased enrollment in the ACA plans. Enrollment in employer-sponsored private health insurance also increase, although rather modest by 500,000 people, or 0.3% compared with an increase of 2.7 million enrollees in ACA plans from 2022 to 2023.

Spending on retail prescription was another contributing factor to the overall increase in healthcare spending. It increased by $46.1 billion, or 11.4% from 2022 to 2023, the largest percentage increase in the past seven years by far. The report doesn’t break by spending by disease or drug name but the Health Affairs article makes a thinly veiled reference to glucagon-like peptide 1 (GLP-1) drugs by mentioning the rapid growth in spending on drugs for diabetes and obesity.

Overall, the expenditure report paints a picture of growing use of healthcare services, not rising prices, as the accelerant in the U.S. spending. Growing use of healthcare is, in turn, an effect of the growth in percentage of people in the U.S. covered by health insurance of some kind. Enrollment in Medicare (2.1%), private health insurance (1.6%) and Medicaid (0.8%) all increased from 2022 to 2023. In 2023, 92.5% of the country’s population was insured compared with 92% in 2022 and 91.4% in 2021. Meanwhile, the number of people without insurance has been declining since 2019, when 31.8 million people were uninsured compared with 24.9 million in 2023, a 21.6% decrease.

Although growth in healthcare spending shot up in 2023, healthcare spending as a percentage of gross domestic product (GDP) increased modestly from 17.4% in 2022 to 17.6% in 2023. Both are in line healthcare spending’s share of spending in pre-COVID-19 pandemic years of 2017, 2018 and 2019 and well shy of the 20% proportion that many were predicting.

The CMS actuaries explain in the Health Affairs article that in 2021and 2022, GDP increased grew faster than healthcare spending. In 2023, it was the reverse: healthcare spending increased by 7.5% while the GDP increased by 6.6%