Medicare Actuaries: U.S. Healthcare Spending Will Rise to $5.548 Trillion and 19.9 Percent of GDP in 2025 | Healthcare Informatics Magazine | Health IT | Information Technology Skip to content Skip to navigation

Medicare Actuaries: U.S. Healthcare Spending Will Rise to $5.548 Trillion and 19.9 Percent of GDP in 2025

February 15, 2017
by Heather Landi
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CMS actuaries project that total healthcare spending will rise from $3.358 trillion in 2016 to $5.548 trillion in 2025
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Under current law, national health expenditures are projected to grow at an average annual rate of 5.6 percent over the period 2016-2025 and increase to 19.9 percent of gross domestic product (GDP) by 2025, with total healthcare spending rising to $5.548 trillion in 2025, according to a study authored by the Centers for Medicare & Medicaid Services’ (CMS) Office of the Actuary (OACT).

The study, “National Health Expenditure Projections, 2016-25: Price Increases, Aging Push Sector to 20 Percent of Economy,” was published today as a ‘Web First’ by Health Affairs and authored by Sean P. Keehan, John A. Poisal, Gigi A. Cuckler, Andrea M. Sisko, Sheila D. Smith, Andrew J. Madison, Devin A. Stone, Christian J. Wolfe, and Joseph M. Lizonitz, all from the CMS Office of the Actuary. The OACT report also can be found on the CMS site here.

The projections for national healthcare spending in the latest report are slightly more optimistic than a similar report published in the July 2016 issue of Health Affairs, as, in that report, actuaries projected healthcare spending would rise to 20.1 percent of GDP. Yet, by all accounts, the projections are still alarming.

Specifically, the authors noted in the report, “Over the next decade (2016–25), growth in nominal (not adjusted for inflation) national health expenditures (NHE) is projected to average 5.6 percent, outpacing average growth in gross domestic product (GDP) by 1.2 percentage points.”

As a result, the actuaries projected, the percentage of the gross domestic product (GDP) spent on healthcare every year across the U.S. healthcare system would climb from 17.8 percent in 2015 to 19.9 percent in 2025. Thus, the actuaries projected that total spending will rise from $3.205 trillion in 2015 to $3.358 trillion in 2016, then $3.539 trillion by 2017, $3.965 trillion by 2018 and, ultimately, to $5.548 trillion in 2025.


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“After an anticipated slowdown in health spending growth for 2016, we expect health spending growth to gradually increase as a result of faster projected growth in medical prices that is only partially offset by slower projected growth in the use and intensity of medical goods and services,” Sean Keehan, the study’s first author, said in a prepared statement in a press release announcing the study. “Irrespective of any changes in law, it is expected that because of continued cost pressures associated with paying for health care, employers, insurers, and other payers will continue to pursue strategies that seek to effectively manage the use and cost of health care goods and services.”

In the study, the authors provide an analysis of their projections: “In 2014 and 2015, when the largest impacts of the major coverage provisions of the ACA were observed, health spending growth averaged 5.5 percent. For the period 2016–25, spending is projected to grow similarly (5.6 percent) but to be largely influenced by changes in economic growth and population aging and not as much by changes in insurance coverage, the study authors wrote. Further, the authors stated, “This expectation leads to slower growth in the use and intensity (or complexity) of medical goods and services, relative to the expansion-related growth of 2014–15. However, medical price growth is projected to quicken in the coming decade compared to recent history, as both overall prices and medical-specific price inflation grow faster.”

According to the report, for 2016, total health spending is projected to have reached nearly $3.4 trillion ($3.358 trillion), a 4.8-percent increase from 2015. The report also found that by 2025, federal, state and local governments are projected to finance 47 percent of national health spending, a slight increase from 46 percent in 2015.

The actuaries’ projections published in this latest study indicate slightly slower growth in U.S. healthcare spending for this time period compared to projections published in the July 2016 issue of Health Affairs. As Healthcare Informatics Editor-in-Chief Mark Hagland noted in his article about the July 2016 Health Affairs study, at that time, actuaries projected the percentage of the GDP spent on healthcare every year across the U.S. healthcare system would grow to 20.1 percent in 2025 with total spending rising from $3.3013 trillion in 2014 to $5.631 trillion in 2025. This latest report from CMS actuaries projects the health share of GDP to rise to 19.9 percent in 2025, slightly under 20 percent, with total spending rising to $5.548 trillion in 2015, about $83 billion lower.

During a press call regarding the study and its findings, a reporter questioned Keehan, an economist in the Office of the Actuary at CMS, about why the spending increase projection in this year’s report was slightly more optimistic than the report last year. Keehan responded, “The growth is projected to be a little bit slower at 5.6 percent, averaging annual growth rate for the projection period. In the report last year, we had 5.8 percent, and the slow growth did account for the slightly lower percentage health share of GPD by 2025. There several smaller reasons, and one reason that I can highlight right now is that growth in medical prices, especially for 2016, 2017 and 2018, were a little bit slower this year, in this report, than in last year’s report.”

Another CMS actuary, and an author of the report, on the call, said, “I think we’re a little slower on the back end as well on the basis of expected slowing growth as we reach the tail end of the projection period. That slowing growth tends to dampen demand, particularly for private payers, so I think that a slight tweak in the way we are anticipating the economic growth to unfold is playing a role as well.”

The study authors conceded that there is considerable uncertainty regarding how the nation’s health care will be delivered and paid for going forward, alluding to possible changes to healthcare policies and laws as it relates to changes, or even a repeal, of the ACA. “The NHE projections are constructed using a current-law framework1 and thus do not assume potential legislative changes over the projection period, nor do they attempt to speculate on possible deviations from current law. While there is currently significant debate involving potential future health-sector policy changes, the scope, timing, and impact of such possible changes on health spending and health insurance coverage are all uncertain at this time,” the study authors wrote.

When asked by reporters on the press call about whether the current and ongoing debates about repealing and replacing the ACA played into the national health spending projections, Keehan said study authors did not take into consideration any proposed healthcare policies. “We don’t have anything in our paper about debates on proposed changes in law,” he said.

Some of the key data from the report:

Total national health spending growth: Growth is projected to have been 4.8 percent in 2016, slower than the 5.8 percent growth in 2015, as a result of slower Medicaid and prescription drug spending growth. In 2017, total health spending is projected to grow by 5.4 percent, led by increases in private health insurance spending. National health expenditure growth is projected to be faster and average 5.8 percent for 2018-2025 largely due to expected faster spending growth in both Medicare and Medicaid.

Medicare: Medicare spending growth is projected to have been 5.0 percent in 2016 and is expected to average 7.1 percent over the full projection period 2016-2025. Faster expected growth after 2016 primarily reflects utilization of Medicare covered services increasing to approach rates closer to Medicare’s longer historical experience. This results in Medicare spending per beneficiary growth of 4.1 percent over 2016-2025 (compared to 1.6 percent growth for 2010-2015).

Private health insurance: Spending growth is projected to have slowed from 7.2 percent in 2015 to 5.9 percent in 2016, a trend that is related to slower growth in private health insurance enrollment. Spending growth is projected to increase to 6.5 percent in 2017, due in part to faster premium growth in Marketplace plans related to previous underpricing of premiums and the end of the temporary risk corridors.

Medicaid: Projected spending growth slowed significantly in 2016 to 3.7 percent, down from 9.7 percent in 2015, largely reflecting slower growth in Medicaid enrollment. Spending growth is expected to accelerate and average 5.7 percent for 2017-2025 as projected per-enrollee spending growth rises over that timeframe. Underlying the faster per enrollee growth is the increasingly larger share of the Medicaid population who are aged and disabled and who tend to use more intensive services.

Medical price inflation: Medical prices are expected to increase more rapidly after historically low growth in 2015 of 0.8 percent to nearly 3 percent by 2025. This faster projected growth in prices is influenced by an acceleration in both economy-wide prices and medical specific prices and is projected to be partially offset by slowing growth in the use and intensity of medical goods and services.

Prescription drug spending: Drug spending growth is projected to have been 5.0 percent in 2016, following growth of 9.0 percent in 2015, mainly due to slowing use of expensive drugs that treat Hepatitis C. Growth is projected to average 6.4 percent per year for 2017-2025, influenced by higher spending on expensive specialty drugs.

Insured Share of the Population: The insured share of the population is projected to increase from 90.9 percent in 2015 to 91.5 percent by 2025. “This is mainly a result of continued growth in enrollment in private health insurance—in particular, employer-sponsored health insurance—in the first year of the projection period, as well as enrollment growth in public programs throughout the period,” the authors wrote.

For 2018 and beyond, the actuaries project that both Medicare and Medicaid expenditures will grow faster than in the 2016–17 period, and more rapidly than private health insurance spending, for several reasons. The authors wrote that growth in the use of Medicare services is expected to increase from its recent historical lows (though still remain below longer-term averages). Second, the authors wrote, “the Medicaid population mix is projected to trend more toward somewhat older, sicker, and therefore costlier beneficiaries. Third, baby boomers will continue to age into Medicare, with some of them dropping private health insurance as a result. And finally, growth in the demand for health care for those with private coverage is projected to slow as the relative price of health care—the difference between medical prices and economy-wide prices—is expected to begin gradually increasing in 2018 and as income growth slows in the later years of the projection period.”

According to the authors, the annual national health expenditure projections are largely based on current law and the existing regulatory environment. They use the economic and demographic assumptions from the 2016 Medicare Trustees Report, which were updated to reflect the latest macroeconomic data, and the latest Medicaid projections from the CMS Office of the Actuary. Finally, these projections are developed using actuarial and econometric modeling methods, as well as judgments about future trends that influence health spending.

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