NHED data continues to show the healthcare crisis
The Centers for Medicare and Medicaid Services (CMS) Office of the Actuary released its projections for healthcare expenditure growth over the next decade, and it continues to show an alarming trend. Healthcare expenditures will grow well above increases in personal income and the gross domestic product (GDP).
Setting the stage
The CMS Actuary is the supreme authority on everything U.S healthcare. 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 National Health Expenditure Data (NHED) reports. Usually in December of each year, the actuary reports on the details of healthcare spending in the prior year. Usually in June of each year, the actuary will forecast healthcare spending growth for the coming decade.
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.
Background
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.
2024 results
The CMS Actuary reported in January 2026 (the report was late due to the government shutdown) on 2024 expenditures. 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.
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.
In June 2025, what did the actuary say about long-term growth?
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.
Now for the June 2026 report
The CMS Actuary says U.S. healthcare spending will hit just short of $9 trillion by 2034. That will be 20.6% of gross domestic product (GDP). While final numbers for 2025 will be tallied by December, the actuary also said healthcare spending was about $5.7 trillion in 2025, up 7.3% from about $5.3 trillion in 2024. That was about 18% of GDP. This would be the third straight year of over 7% growth.
The average growth over the decade will be about 5.4%, which is lower than the projection in June 2025. But healthcare spending will continue to grow faster than the rest of the economy and income during the decade period projected. The actuary says healthcare spending projections correspond to an average real per capita growth rate assumption of about 2.8% annually, which is 0.9% faster than GDP growth. Further, the growth estimate is more than a percentage point higher than the 1.7% rate observed between 2009-2023.
Utilization increases have been one of the major culprits for aggressive trends the past few years. This will continue in 2026 and will taper off thereafter. The actuary says the growth rate will slow to 4.9% during the 2027 and 2028 period as utilization stabilizes and there is a decline in Medicaid enrollment due to changes made as part of the One Big Beautiful Bill Act (OBBBA). (Interestingly, the impact of the OBBBA reductions to Medicaid and the Exchanges as well as the expiration of enhanced premium subsidies are expected to be more modest than Congressional Budget Office (CBO) projections.) In the latter half of the projection window, escalating Medicare enrollment will bump up spending growth again, with growth expected to average 5.2% between 2029 and 2034.
Retail prescription drug spending is forecast to grow at the fastest rate over the next decade. Growth in retail prescription drug spending is expected to be 5.7% per year on average for 2025 to 2034, with hospital spending growth at 5.2% per year on average, and physician and clinical services spending growth at 5.5% per year on average during this period.
The actuary says administrative costs will increase, but that it has not taken into consideration any reductions due to technology enablement.
The insurance rate will go from 91.8% in 2024 to:
- 90.8% in 2026
- 90.4% in 2028
- 90.5% in 2034
The uninsured rate will rise 8.2% to 9.5%.
Medicare is projected to grow by 7.7% on average annually, with Medicaid and private insurance growing by 5% on average annually.
The problem
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. A new West Health-Gallup Affordability Index survey classifies just 49% of American adults as “Cost Secure” down two percentage points from 2024 and down 12 percentage points from 2022. Forty-one percent of adults in 2025 are considered “Cost Insecure” and 10% of adults are considered “Cost Desperate.”
- Healthcare will become more and more unaffordable. For example, health insurance companies say Exchange premiums will spike again in 2027 after a huge surge in 2026. Rate filings are underway. Hikes discussed by plans generally are between 11 and 26%, with one request as high as 52%. Enhanced subsidies’ expiration saw enrollment decline and risk increase. Those trends are continuing along with utilization and cost hikes. In the employer world, more and more are being converted to leaner plans with higher premiums, deductibles, and cost-sharing.
- Choice will get tighter. Six carriers have announced that they will exit the Exchanges in 2027, either in some or all states that they are currently offering plans: Cigna Health, CareSource, PacificSource, Scott and White, Providence Health, and Taro Health. The average number of issuers offering plans in the Exchanges has declined from 9.6 issuers per state in 2025 to 9.0 issuers per state in 2026. In total, 18 states experienced a net decrease in the number of issuers offering plans. Three in 10 counties have fewer participating insurers than last year. In 165 counties, only one issuer is offering plans, up from 93 counties in 2025.
- Medicare trustees report that the hospital Insurance trust fund will run dry in Q2 of 2033, a quarter earlier than the last report. This will happen because recent reconciliation legislation permanently cut taxes that supported Medicare. The standalone Part D (PDP) plans are increasingly financially untenable. Medicare Advantage (MA) benefits have eroded dramatically in the past few years due to poor rate hikes and rising costs.
- There is a looming Medicaid crisis, with major cutbacks in eligibility and benefits due to rising costs and the impacts of the OBBBA.
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 #nhed #healthcarereform #cms
— Marc S. Ryan
