U.S. healthcare spending has outpaced GDP growth

Inflation is driving up the costs of everything, but none more so than healthcare, new data shows.

According to a study from the Centers for Medicare and Medicaid Services (CMS), U.S. healthcare spending surged 7.5% to $4.8 trillion in 2023, outpacing the GDP growth of 6.1%.

In 2022, healthcare made up 17.3% of GDP and is projected to make up 19.7% of the economy by 2032—thanks to a combination of inflation and aging populations.

“Underlying this differential or faster growth and personal health care prices relative to the economy wide price growth, the continued aging of the population and increasingly more demand for health care relative to income growth,” said Jacqueline Fiori, an economist at CMS.

Having crossed $1 trillion in 2023, Medicare is expected to be the fastest-growing spending category, thanks to more baby boomers enrolling in the program.

“Among the major payers, Medicare has the highest projected ten-year average spending growth rate,” the report says.

In 2023, the estimated healthcare spending per person in the U.S. stood at about $14,423 and is estimated to increase to $15,074 in 2024.

Health insurance is a major contributor

In addition to rising prices and aging, another major contributor to healthcare spending growth is the fact that 93% of Americans are now insured.

Private health insurance enrollment increased by 2.9%, connected to subsidies for direct-purchase health insurance under the Inflation Reduction Act.

Medicaid enrollment levels reached a record 91.2 million in 2023, a carry-over from automatic pandemic-era enrollment renewals. However, Medicaid enrollment is set to decline 11.2% in 2024 as those policies expire.

Despite the fact that millions of Americans will lose their Medicaid coverage this year, the report says that spending is still projected to grow by 5.2% in 2024.

Healthcare spending to make up 20% of the entire economy

The CMS report predicts that national health spending will grow at an average annual rate of 5.6% from 2023 to 2032, outpacing the projected annual GDP growth rate of 4.3%.

"The earlier years of the projection period are expected to reflect divergent trends in spending and enrollment patterns as the health sector transitions away from pandemic-related policy effects," Fiore said in a statement.

In the short term, Biden's Inflation Reduction Act will boost healthcare spending further, especially through a $2,000 annual cap on out-of-pocket costs for Medicare beneficiaries.

However, starting in 2026, Medicare will begin to negotiate drug prices, aiming to reduce long-term healthcare spending growth.