2024 saw another major surge in healthcare spending coming out of the COVID pandemic
One of my Christmas traditions is to write about the release of the Centers for Medicare and Medicaid Services (CMS) Actuary’s National Healthcare Expenditure Data (NHED) for a given calendar year. This usually is released in the middle of December each year for the prior year, but alas the government shutdown meant the data were published in January.
It literally takes CMS about a year to capture, calculate, and categorize all the data for a year given the size and labyrinthine complexity of our healthcare system. Each year as well, usually in the first half of June, the CMS Actuary updates healthcare spending projections for ten outyears.
Why is this so important? First, it is the main comprehensive source of data for calculating the history and future of healthcare spending. Most other studies rely in some form on the CMS Actuary’s NHED reports. Second, it is a treasure trove of data that helps explain the inner workings of the healthcare system. Here you will find data by line of business, by service type, source of payment, and more. Last, since it calculates the amount of gross domestic product (GDP) devoted to healthcare spending each year, it is the official statistic for how we are performing on the cost side against other developed nations.
Before we get into the specifics, we saw a huge surge in healthcare spending as a percentage of GDP during the COVID years because of massive government appropriations. That came down a bit after the pandemic subsided. But the fact remains that America is a huge outlier in terms of healthcare spending in the developed world. We continue to inch toward one-fifth of our economy devoted to healthcare. I usually say that the United States spends anywhere from 33% to 100% more than the rest of the developed world.
And as I often say, too, the value in the U.S. system is abominable. We spend the most by far of any developed nation, yet we rank dead last in terms of outcomes on a recent Commonwealth Fund study. It is not just that we are dead last, but that we are a quality outlier even against the lowest performing developed nations in the study.
Let’s get to the findings from the CMS Actuary for 2024
Let’s dig into the numbers from the 2024 NHED. All the details can be found here: https://www.cms.gov/data-research/statistics-trends-and-reports/national-health-expenditure-data/historical . A great Infographic here: https://www.cms.gov/files/document/nhe-infographic.pdf .
Some NHED findings for 2024 from the CMS Actuary:
Overall Spending Growth: In 2024, healthcare spending in the United States rose to $5.279 trillion, a $353.3 billion or 7.2% increase. This is close to the 7.4% growth observed in 2023. We now spend $15,474 per person on healthcare in America as of 2024. This was largely driven by heightened utilization (use and intensity) and a shift in the types of services consumed (4.7%) and less so for actual inflation (2.5%). The so-called pent-up demand for services from COVID does not appear to be subsiding. The advent of technology and new drugs is also taking hold. A good example is the use of GLP-1 weight-loss drugs.
Healthcare expenditures as a percentage of GDP went from 17.7% in 2023 to 18% in 2024.
Hospital Care (31% share): Spending for hospital care services increased 8.9% in 2024 to reach $1.6 trillion. This was the second year of strong growth following 10.6% growth in 2023. The substantial growth in both 2023 and 2024 resulted from a rebound in non-price factors, such as the use and intensity of services. Hospital care for private health insurance grew 10.4%, Medicare 6.9%, and Medicaid 8.5%. Contributing to the 2024 trend was growth in prices for hospital care, increasing by 3.4% — the highest rate of increase since 2007 and faster than 2.7% in 2023.
Physician and Clinical Services (21% share): Spending for physician and clinical services increased 8.1% to $1.1 trillion in 2024, which was faster than the 7.4% in 2023. Nonprice factors, particularly the utilization and intensity of services, drove this. Prices for physician and clinical services rose by 1.8% in 2024, compared to 0.6% in 2023.
Retail Prescription Drugs (9% share): Retail prescription drug spending increased 7.9% to $467.0 billion in 2024, compared to an increase of 10.8% in 2023. This deceleration was due, in part, to slower growth in retail prescription drug prices (which increased 1.4% in 2024 compared to 2.3% in 2023) as well as slower growth in the use of medicines. Despite the slowdown in total retail prescription drug spending in 2024, demand for drugs to treat diabetes and weight loss continued to increase, somewhat offsetting the overall trend.
Insurance Growth: Private health insurance enrollment increased from 207.0 million in 2023 to 214.3 million in 2024, with Exchange enrollment reaching 21.1 million—up from 16.2 million in 2023 and 9.8 million in 2019. The notable increase in Exchange participation in 2024 was largely attributed to the extension of enhanced premium tax credits and the availability of a special enrollment period for individuals transitioning from Medicaid coverage.
As states resumed eligibility redeterminations following the end of pandemic-era coverage provisions, Medicaid enrollment decreased from 92.2 million in 2023 to 84.3 million beneficiaries in 2024. When all types of insurance coverage are reflected, the insured share of the population was 91.8% in 2024— down slightly from an historic high of 92.5% in 2023.
Program/Insurance Breakout: Private Health Insurance was 31% of spending and reached $1.6 trillion in 2024, an 8.8% increase – a slowdown from 11.2% in 2023. Private insurance saw a 3.5% enrollment growth and a 5.2% increase per-enrollee expenditure growth.
Medicare was 21% of spending and reached $1.1 trillion in 2024, a 7.8% increase – a slowdown from 9.0% in 2023. Medicare saw a 2.2% enrollment growth and a 5.4% per-enrollee expenditure growth. Medicare Advantage private plan spending growth slowed in 2024, from 16.1% in 2023 to 9% in 2024 largely due to financial policy changes. Traditional Medicare fee-for-service spending experienced faster growth in 2024, increasing 6.4% from 2% in 2023.
Medicaid was 18% of spending, increasing 6.6% to $931.7 billion in 2024 – a slowdown from 7.9% in 2023. While Medicaid spending growth slowed in 2024, per-enrollee spending increased by 16.6% due to a more adverse population of remaining enrollees after an enrollment decline of 8.6%. Provider rates and state-directed payments also increased.
Out-of-Pocket Costs: Out-of-pocket costs were 11% of total expenditures and increased 5.9% to $556.6 billion in 2024, a deceleration from 6.8% growth in 2023.
Sponsor Breakout: The federal government covered 31% of all costs and spent $1.7 trillion, an increase of 5.5% in 2024 and up from 3.8% in 2023. Enhanced Exchange subsidies, Medicare growth, and Part D cost-sharing changes drove a great deal of increases.
Households covered 28% of all costs or $1.5 trillion, an increase of 6.9% in 2024. Household spending for Medicare premiums and payroll taxes paid by individuals as well as premiums paid for individually purchased health insurance all grew faster in 2024. Out-of-pocket spending growth slowed from 6.8% in 2023 to 5.9% in 2024. Growth in employee contributions to employer-sponsored private health insurance slowed from 8.8% in 2023 to 6.8% in 2024.
Private businesses covered 18% of all costs in 2024 — $967.4 billion, an increase of 5.6% and down from 10.3% in 2023. Private employers contributed 72% to employer-sponsored private health insurance spending and households the remainder. In 2024, private businesses’ spending on employer-sponsored private health insurance grew 6.3%, down from 12.2% in 2023.
State and local government covered 16% of all costs, or $859.7 billion and an increase of 12.1% in 2024. The state portion of Medicaid payments, which accounted for 39% of all state and local government spending, exhibited strong growth in both 2023 and 2024, increasing 18.2% and 19.2%, respectively, as states paid for a greater share of spending due to the phasing out of the temporary enhanced funding from the COVID pandemic.
Census statistics reported
The Census Bureau also released healthcare statistics based on the 2024 Current Population Survey. The typical working family in the U.S. spent $3,960 on healthcare-related costs in 2024, including premiums and out-of-pocket expenses. One in eight working families spent more than 10% of their income on healthcare. About 10% of working families paid more than $14,800 in premiums and out-of-pocket costs. The low income and those from rural areas spent the greatest percentage of income on healthcare.
What does it all mean?
The robust growth shows the challenges ahead for healthcare. It was the second consecutive year costs trended up more than 7%. We are seeing a robust return of utilization. Because prices are not controlled in our healthcare system, transactional payments dominate, and value-based care (VBC) is still in its infancy (some question its real effectiveness), robust growth will continue to drive healthcare spending up each year and eat up more and more of economic output. I also suspect we will see rising inflation, which will add to the costs. Drug prices and utilization will also play a role in driving up costs even more.
The CMS Actuary will update predictions for the long term in June 2026. In June 2025, the CMS Actuary projected healthcare spending would be $5.263 trillion in 2024. It came in at $5.279 trillion – just a $16 billion difference or 0.3%. In June 2025, the CMS Actuary said healthcare spending would grow to $8.585 trillion by 2033. Using actual 2024 expenditures, that is a growth of 62.6% in 9 years – or just under 7% per year on average. Healthcare spending would represent 20.3% of GDP in 2033 – exceeding that one-fifth magic number we often worry about. We now spend $15,474 per person on healthcare in America as of 2024. That is projected to go to $24,200 in 2033, a 56.4% increase.
The ongoing growth in NHED is clearly not sustainable. Without major reform, we are faced with a number of compounding problems.
While some healthcare spending can be deemed good spend, the reality is most of it is not and healthcare will crowd out economic growth and constrain business growth.
More Americans will become uninsured and underinsured. The CMS Actuary says the number of uninsured will grow from 26.6 million projected in 2024 to 30.9 million in 2033. And this is before the effects of the One Big Beautiful Bill Act (OBBBA) were known, which could reduce Medicaid and Exchange rolls (combined with the loss of enhanced subsidies) by 14 million. In terms of the underinsured, if we see a 7% annual rise in spending, we will see more and more costs moved to employee-share of premiums, deductibles, and cost-sharing.
Healthcare will become more and more unaffordable. Out-of-pocket costs are expected to grow from $557 billion in 2024 to $782 billion in 2033, a 40% increase. While this is less than the overall growth, it is clear that real wages won’t increase that much over time.
In the end, healthcare reform is a must for America. As I say in The Healthcare Labyrinth, the three keys are affordable universal coverage, a pivot to care management, and price reform. We also need to tackle the pernicious effects of consolidations and vertical integration in the system, which drive both price, utilization, and overall costs.
#healthcare #spending #coverage #healhcarereform #nhed #cms
— Marc S. Ryan
