Medical care costs likely to increase to over $7 trillion by 2031

June 23, 2023

Source: Keehan, et al Health Affairs July, 2023 LINK

The Office of the Actuary of CMS published its annual projection of the nextdecade of medical expenses late last week in Health Affairs. The authors predict that medical inflation will be a bit higher than overall inflation: about 5% in 2023 and 2024 and 5.6% from 2025-2031. Total costs for private insurance are projected to increase 7.7% (2023) and 7.6% (2024). The per enrollee cost of private insurance (which includes employer sponsored health insurance and marketplace plans) is projected to increase from $5728 (2019) to $9898 (2031). Per enrollee spending will go up 6.8% in 2023 and 2024, and the number of enrollees increases very modestly through the projection period.

Source: Keehan, et al Health Affairs July, 2023 LINK

The Office of the Actuary anticipates a lower rate of cost increase for prescription drugs than overall medical inflation but does not distinguish between cost for Medicare and cost for private insurance. Under the Inflation Reduction Act (IRA), CMS will negotiate drug prices for some drugs starting in 2026. Employer-sponsored insurance is already benefiting from rules that require a government rebate if prices increase by more than inflation. This likely led to the decreases in insulin prices announced earlier this year. I think the Office of the Actuary is underestimating future cost increases in pharmacy. The new anti-obesity drugs alone could dramatically increase cost, and I expect continued huge innovations in pharmacy stemming from genomics will add further cost. Artificial intelligence could speed development of new innovative drugs which is also likely to raise total costs.  

Source: Keehan, et al Health Affairs July, 2023 LINK

Implications for employers:

-        Expect relatively high rates of medical cost inflation in 2023, which this projection suggests are likely to moderate somewhat thereafter. 

-        The imperative to better control unit price and utilization will continue for employer-sponsored health plans.

-        I expect pharmacy cost increases will be higher than those projected by the Office of the Actuary.

Here are links to posts on future medical costs from two colleagues: WTW’s Chief Actuary Tim Stawicki and WTW’s Health Analytics Leader Elodie Olsen.  

Have a great weekend!

On Monday - results of a KFF survey of member satisfaction with employer sponsored health plans. The results are not pretty.