The United States witnessed a significant surge in healthcare spending in 2023, with an increase of 7.5% compared to the previous year. This marks the largest annual jump in the past seven years, excluding the COVID-19 spike of 2020. The annual report on national healthcare expenditure prepared by CMS actuaries, released today, provides valuable insights into the factors driving this growth.

Uncover the Reasons Behind the 2023 Healthcare Spending Boom

Hospital-Based Care: A Key Driver of Spending Increase

The report highlights that the largest percentage increase in spending on hospital-based care since 1990 contributed significantly to the overall rise. Hospitals play a crucial role in the healthcare system, and this substantial increase indicates a growing demand for their services. With advancements in medical technology and an aging population, more patients are seeking hospital care, leading to higher expenditures. For example, complex surgeries and specialized treatments often require extended hospital stays, which directly impact the spending on hospital-based care.Moreover, the quality of care provided in hospitals has also been a factor. Patients are willing to pay more for top-notch medical facilities and experienced healthcare professionals. This has led to an increase in the cost of services offered by hospitals, further contributing to the overall spending growth.

Private Health Insurance: A Significant Spike in Spending

The percentage increase in spending on private health insurance was the largest since 1990, rising by 11.5% from the amount spent in 2022. CMS actuaries traced this spike, in part, to enhanced premium subsidies for ACA marketplace plans. These subsidies made health insurance more affordable for many individuals and families, resulting in increased enrollment in ACA plans. As more people gained coverage, the overall spending on private health insurance also went up.In addition to the subsidy factor, other aspects such as rising medical costs and changes in insurance policies also played a role. Insurance companies have been adjusting their premiums and coverage plans to meet the evolving healthcare needs of the population. These changes have led to an increase in the amount spent on private health insurance, adding to the overall healthcare expenditure.

Retail Prescription Drugs: A Contributing Factor to the Increase

Spending on retail prescription drugs saw a significant increase of $46.1 billion, or 11.4% from 2022 to 2023, marking the largest percentage increase in the past seven years. Although the report does not break down the spending by disease or drug name, the Health Affairs article makes a reference to glucagon-like peptide 1 (GLP-1) drugs. The rapid growth in spending on drugs for diabetes and obesity is a clear indication of the rising demand for these medications.The development and introduction of new drugs, along with the increasing prevalence of chronic diseases, have led to a higher consumption of retail prescription drugs. This, in turn, has contributed to the overall increase in healthcare spending. Additionally, the pricing of these drugs and the negotiation processes between pharmaceutical companies and insurers also play a significant role in determining the spending on retail prescription drugs.

Growing Use of Healthcare Services and Insurance Coverage

Overall, the expenditure report shows a growing use of healthcare services rather than rising prices as the accelerant in U.S. spending. The growth in the percentage of people covered by health insurance of some kind is a key factor. Enrollment in Medicare (2.1%), private health insurance (1.6%), and Medicaid (0.8%) all increased from 2022 to 2023. In 2023, 92.5% of the country's population was insured, compared to 92% in 2022 and 91.4% in 2021.This increase in insurance coverage has led to more people seeking healthcare services, which has in turn driven up spending. As more individuals have access to health insurance, they are more likely to utilize healthcare services, resulting in a higher overall expenditure. Additionally, the improved affordability of insurance due to subsidies and other factors has also contributed to the increased use of healthcare services.Although healthcare spending shot up in 2023, its percentage of gross domestic product (GDP) increased modestly from 17.4% in 2022 to 17.6% in 2023. This is in line with healthcare spending's share in pre-COVID-19 pandemic years and is well below the 20% proportion that many were predicting.The CMS actuaries explain in the Health Affairs article that in 2021 and 2022, GDP grew faster than healthcare spending. However, in 2023, the trend reversed, with healthcare spending increasing by 7.5% while the GDP increased by 6.6%. This indicates that while healthcare spending is still on the rise, it is not outpacing the overall economic growth.