Healthcare expenditures rise on increased coverage and utilization

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Healthcare spending is higher than before the pandemic and is being driven by increases in insurance coverage and utilization, according to new analysis released Wednesday by the Office of the Actuary at the Centers for Medicare and Medicaid Services and published by Health Affairs.

In 2023, healthcare spending in the United States reached $4.9 trillion and increased 7.5%, growing from a rate of 4.6% in 2022, the report said. This is higher growth than before the pandemic, officials said. 

Private health insurance represented a 30% share of healthcare spending. It reached $1.5 trillion in 2023 and increased 11.5%. The robust growth was driven by increased enrollment in ACA marketplace and employer-sponsored private health insurance plans, strong growth in spending for goods and services and strong growth in the net cost of insurance. 

In 2023, enrollment in private health insurance increased 1.6%, or by 3.3 million individuals. 

Medicare had a 21% share of spending; Medicaid, an 18% share; and out-of-pocket represents10%.

WHY THIS MATTERS

In 2023, the insured share of the population reached 92.5%, as enrollment in private health insurance increased for a second year in a row. In 2022, the insured rate was 92%.

Much of the growth in private health insurance enrollment was due to rapid growth in Affordable Care Act marketplace enrollment, which increased by 2.7 million individuals in 2023, primarily as a result of enhanced subsidies made available by the American Rescue Plan Act of 2021 and renewed under the Inflation Reduction Act of 2022. These subsidies are currently set to expire in 2026.

Both private health insurance and Medicare spending grew faster than in 2022, while Medicaid spending and enrollment growth slowed as the COVID-19 public health emergency ended. 

Other Findings: 

• Spending for hospital care services increased 10.4% in 2023 to reach $1.5 trillion. This rate of growth was the fastest since 1990. Faster growth in 2023 was driven by the use and intensity of services, with an increased number of hospital discharges and increased Medicare outpatient hospital utilization.  
• Spending for physician and clinical services increased 7.4% to $978 billion in 2023, which was faster than the growth rate of 4.6% in 2022. Faster growth in 2023 was also driven by non-price factors such as use and intensity of services, while price growth remained low at 0.6%.  
• Retail prescription drug spending increased 11.4% to $449.7 billion in 2023, accelerating from a rate of 7.8% in 2022. Contributing to this was the rapid growth in spending for drugs used to treat diabetes and obesity.
• Medicare spending reached $1.0 trillion in 2023, increasing 8.1% following 6.4% growth in 2022. This faster growth was driven by a turnaround in traditional fee-for-service spending growth (from a decline of 1.4% in 2022 to an increase of 1.7% in 2023). 
• Medicare Advantage private plan spending continued to experience rapid growth (increasing 14.7% in 2023 following 15.7% growth in 2022) and accounted for 52% of total Medicare expenditures in 2023 (from a 39% share in 2019). 
• Total Medicare enrollment grew 2.1% in 2023, a slight acceleration from 2022 when enrollment increased 1.9%. 
• Medicaid spending increased 7.9% to $871.7 billion in 2023, a slower growth rate than in 2022 (9.7%) and 2021 (9.5%). In 2023, Medicaid enrollment increased 0.8%, following growth of 7.5% in 2022, and reached 91.7 million, even as states resumed the redetermination of Medicaid eligibility following the end of pandemic-era coverage protections. 
• Total out-of-pocket spending increased by 7.2% in 2023 to $505.7 billion, a slight acceleration from growth of 6.9% in 2022. Hospital care, physician and clinical services and nursing care facilities and continuing care retirement communities, which collectively accounted for 33% of all out-of-pocket spending in 2023, were the main contributors to the faster growth in 2023. 

THE LARGER TREND

The health sector's share of the economy in 2023 was 17.6%, which was similar to its share of 17.4% in 2022, but lower than in 2020 and 2021 during the height of the COVID-19 pandemic. 

When adjusted for healthcare price inflation (as measured by the National Health Expenditure deflator), real healthcare spending increased 4.4% in 2023--a higher rate than the increase of 1.4% for such spending in 2022 and higher than the growth rate of real GDP, which was 2.9% in 2023. 
 

Email the writer: SMorse@himss.org