Healthcare Spending Will be One-Fifth of the Economy within a Decade

Healthcare spending in the United States is rising, with serious implications for the federal budget, according to recent projections from the Centers for Medicare & Medicaid Services (CMS). National health expenditures (NHE), which includes both public and private spending on healthcare, are projected to climb from $4.4 trillion, or $13,413 per person, in 2022 to $7.2 trillion, or $20,425 per person, in 2031. Relative to the size of the economy, NHE is projected to climb from 17.4 percent of gross domestic product (GDP) in 2022 to nearly 20 percent by 2031 as rising healthcare costs will outpace the growth in the economy.

Healthcare costs continue to rise due to a myriad of factors, but central reasons include the increased utilization of healthcare services, partially due to the aging population, and the rising cost of health services. The aging population translates to higher healthcare costs because older people, on average, need more healthcare. For example, individuals age 65 and older spend, on average, three times more on healthcare per person than working-age individuals and five times more than children. The rising cost of health services will also raise healthcare spending — driven by new technology, fast-growing inflation, and greater labor costs. Compared to 20 years ago, the consumer price index for all urban consumers has increased by 66 percent while the specific index for medical care prices has grown by 85 percent.

That growth in healthcare costs has consequences for the nation’s fiscal outlook. Primarily due to the aging of the population, enrollment in, and therefore the costs of, government health insurance programs such as Medicare and Medicaid will rise. Federal spending on healthcare is expected to climb from $1.9 trillion in 2022, or 46 percent of healthcare spending, to $3.3 trillion, or 49 percent of healthcare spending, in 2031.

Healthcare costs are already high and rising, and CMS’s new NHE projections confirm the continuation of that trend. With total healthcare spending expected to reach one-fifth of the economy in just eight years, lawmakers should consider solutions to rein in costs to reduce the financial burden on consumers and help improve the nation’s fiscal trajectory.

Related: Healthcare Costs for Americans Projected to Grow at an Alarmingly High Rate

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