Why Will Health Spending Growth Increase Even While Insurance Coverage Declines?

Late last month, actuaries at the Centers for Medicare and Medicaid Services released their latest projections of 10-year national health care spending trends (from 2024–2033). The June 25 Health Affairs study suggests some manufactured surprise in highlighting "Despite Insurance Coverage Declines, Health to Grow as Share of GDP."

Figuring out the most likely causal chain requires actually reading the data and looking for the lost keys beyond the nearest lamppost of insurance coverage levels. The more powerful underlying causes are Medicare spending growth, increased health care utilization (not health care price inflation), and the continuing long-term decline in the share of health spending paid out of pocket. Declines in the recent high levels of health insurance coverage are relatively modest, at least as projected before final passage last week of Medicaid and ACA marketplace provisions in the Big Beautiful Bill (BBB).

First, the broader trend lines:

In the near term, annual growth in health spending is up noticeably—8.2 percent in 2024, and a projected 7.1 percent in 2025. Despite some later cooling of those recent highs over the rest of the projection period, national health care spending will continue to outpace GDP growth, 5.8 percent vs. 4.3 percent annually over the entire ten-year period.

The simple math then produces a higher share of the national economy absorbed by the health care sector—growing from 17.6 percent of GDP in 2023 to 20.3 percent in 2033. Caution: Projections are mostly guesses that the future will be roughly similar to the past, with some adjustment for recent years' variations from normal patterns. Actuaries also have to operate within the bounds of current law, rather than assume that better, or worse, policies will be enacted and administered to avert (or accelerate) fiscal collisions ahead. For example, the latest 10-year projections also could not take into account then-yet-to-be-approved changes in health policy made by this month's passage of the BBB via budget reconciliation procedures. (More on that later). However, the projections' reliance on current law also includes expiration next year of enhanced tax subsidies for the Affordable Care Act's individual coverage exchange plans.

One noteworthy finding that differs from somewhat older ones is that health spending growth will be greater for Medicare (averaging 7.4 percent annually from 2024–2033) than for overall private insurance coverage (5.2 percent average annual growth). The annual growth rates for Medicaid in later years will slow from its more recent ones. Even without more aggressive enforcement of new work requirements for the below-65 adult portion of Medicaid enrollees, the recent rapid enrollment growth in Medicaid already peaked in 2023, before the end of the COVID-19 public health emergency's continuous enrollment rules and the beginning of eligibility redeterminations by state administrators.

Another subtle shift in the analysis of future spending is the relative deemphasis of price inflation as a primary force and the return of higher health care utilization as a driving factor ("It May Not Always Be Just the Prices, Stupid!"). Higher utilization growth may have started, with a lag, after the first year or two of the pandemic, but a glance at most insurers' medical loss ratios and earnings reports suggests it has not yet ended.

Most cursory summaries of the latest ten-year projections will tend to overlook one other persistent finding; The rising share of health spending paid by third parties—virtually uninterrupted for over six decades—will continue. The out-of-pocket share of health spending, at 10.4 percent in 2023, will decline to 9.3 percent by 2033. I have written about this before. The desire to spend other people's money on health care, augmented by deficit financing, remains strong. The return to total government health spending as a share of national health care expenditures will return to at least 50 percent by 2033. Regulation, administered pricing, and hidden cross-subsidies extends political control of health care spending decisions even further.

Keep in mind that we have been here before, and we will return again as soon as next year. As I wrote almost 14 years ago,

"So, the latest set of ten-year spending projections is interesting and informative, but it provides at best a temporary directional guide to what's ahead, rather than much precision as to its magnitude. Then again, there will be another set of such projections in another Health Affairs article NEXT YEAR. Just like long-term congressional budget resolutions that are revised annually (if they are ever approved, in recent years…).

Former Dallas Cowboys star running back Duane Thomas summarized this phenomenon best when asked in 1971 how he felt about playing in Super Bowl VI: "If it's the ultimate game why do they play one every year?"

Learn more: A Graceful Life and Legacy | An Extra Round of Thanksgiving | Whatever Did Not Kill Obamacare Made It Stronger: Part 2 | Whatever Did Not Kill Obamacare Made It Stronger: Part 1

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