Healthcare to reach 19.4% of GDP by 2027

The healthcare sector will continue to eclipse more of the economy over the next several years, with national healthcare expenditures hitting 19.4 percent of GDP by 2027, according to the Office of the Actuary at CMS. From 2018 to 2027, healthcare expenditures will grow an average of 5.5 percent annually, hitting nearly $6 trillion.

The findings are on par with other projections anticipating healthcare spending to reach near 20 percent, partly due to rising prices.

National health spending will outpace GDP by 0.8 percent over the same time period. In 2018, national health spending is expected to have grown 4.4 percent, above the 3.9 percent reported in 2017. Healthcare spending growth is expected to be driven by demographic and economic factors, according to an accompanying report in Health Affairs about the data.

“During the past ten years the lingering effects of the Great Recession, coupled with the coverage and payment provisions of the Affordable Care Act, have significantly influenced the trends in health care spending and enrollment in the United States,” Andrea M. Sisko, PhD, economist in the Office of the Actuary at CMS and lead author of the Health Affairs report, et al. wrote. “Over the next decade, however, the outlook for health spending and insurance coverage is expected to be primarily driven by long-observed demographic and economic factors fundamental to the health sector.”

Other recent studies have found that rising prices are a top cause for growing healthcare spending, including hospital and prescription drug prices.

While the projected annual rate of spending growth (5.5 percent) is faster than the rate immediately following the recession from 2008 to 2013 (3.9 percent) and after (5.3 percent from 2014 to 2016), it is still slower than the two decades preceding the Great Recession. From 1990 to 2007, healthcare spending grew 7.3 percent annually.

Growth by sector, payer

As national health spending rises overall, subsectors are projected to experience different growth rates. Spending is expected to rise the most among the major payers, reflecting the rising utilization and aging population trends. Healthcare prices are expected to “rebound somewhat” to be more consistent with rates seen during the period before the Great Recession, with personal healthcare price growth exceeding inflation rates, according to Sisko and colleagues.

In addition, as disposable personal income rises, the Office of Actuary anticipates a higher demand for services that will “put pressure on the pattern of private health insurance and out-of-pocket spending growth over the projection period,” Sisko and colleagues wrote.

Here are the projections by sector and payer:

  • Health insurance enrollment will likely keep pace with population growth, with the insured population dipping slightly from 90.9 percent in 2017 to 89.7 percent in 2027.
  • Medicare spending growth will average 7.4 percent from 2018 to 2027––the fastest rate among payers––largely driven by aging baby boomers.
  • Medicaid annual growth spending will average 5.5 percent through 2027. As three more states expand Medicaid over the next couple years, the spending growth rate will pick up, to 6 percent, from 2020 to 2027.
  • Private health insurance spending growth will be the slowest of the major payers, with an average of 4.8 percent. Out-of-pocket spending will also grow an average of 4.8 percent over 2018 to 2027, representing 9.8 percent of total spending by 2027.
  • Prescription drugs spending growth is projected to accelerate at an average of 5.6 percent as the utilization rate grows and other factors influence higher spending.
  • Hospital spending growth will average 5.6 percent over the time period, including a projected acceleration to 5.1 percent in 2019 from 4.4 percent in 2018.
  • Physician and clinical services spending will grow an average of 5.4 percent per year from 2018 to 2027, thanks in part to faster growth in prices due to anticipated wage growth and demand from the aging population.