Health expenditures in the U.S. are expected to grow by an average of 5.6 percent annually through 2025, driven by rising medical prices that won’t be offset by slower growth in other areas.

The newest edition of the annual National Health Expenditures Project, authored by CMS’s Office of the Actuary and published in Health Affairs, showed healthcare spending growth slowed as expected in 2016 to 4.8 percent, reaching nearly $3.4 trillion. The dropoff from the 2015 rate of 5.8 percent was attributed to slower prescription drug and Medicaid spending growth.

Projected growth for 2018 is expected to be 5.4 percent, driven by increased spending in private health plans. From 2019 through 2025, growth is expected to be back at the 2015 level of 5.8 percent, largely thanks to faster spending in Medicaid and Medicare. Medical prices are expected to grow much faster, going from 0.8 percent growth in 2015 to nearly 3 percent by 2025—jumps which will be only partially offset by slower projected in the use and intensity of medical goods and services.

“One of the reasons medical price inflation has been so low is (because we’re) coming off the recession,” said study author Sean Keehan. “In addition there’s been a few health-specific reasons. For example, physician prices were actually negative in 2015 and part of that had to do with the expiration of the temporary payment increase to primary care providers from Medicaid.”

Spending in several areas is expected to grow faster between 2017 and 2025 than it did last year. For example, Medicaid spending growth was at 5 percent in 2016, but in the full projection period is expected to average 7.1 percent.

By 2025, 47 percent of national health spending is projected to be financed by federal, state and local governments (up from 46 percent in 2015) and will make up just under 20 percent of the country’s gross domestic product (up from 17.8 percent in 2015).  

None of these projections take into account possible changes to healthcare spending as the result of legislative action, like if the Affordable Care Act is repealed.

“We do these projections on a current law basis and that’s the way we’ve always done that,” Keehan said.

If the law stays in place, the projections indicate spending growth may “revert to being fundamentally driven by changes in economics and demographics” after the post-ACA changes in expanding coverage and enrollment in health plans.