US Healthcare Spending Nears $5 Trillion, Rising 7.5% in 2023

livewell
December 19, 2024
Noah Bennett

Introduction

The Centers for Medicare and Medicaid Services (CMS) has recently issued a report regarding healthcare spending in 2023. According to the federal agency that oversees Medicare and Medicaid, US healthcare spending has increased by 7.5% in the last year and has reached nearly $5 trillion. The biggest driver of these costs is an increase in individuals using subsidized medical services.

According to the CMS, the US healthcare system costs have increased more than the country’s economic growth. Compared to the GDP growth of 2.9% in 2023, the healthcare spending of the nation rose by 4.4% during the same period. Private health plans under the Affordable Care Act (ACA) are also a contributor to these costs.

Healthcare Spending Growth

Several sections of the healthcare industry played a part in this healthcare expenditure. The biggest increase was witnessed in the spending on retail prescription drugs, rising by 11.4% in 2023 compared to a 7.8% increase in 2022. It was the highest rise after the height of COVID-19.

The biggest contributors to this cost were diabetes and weight-loss drugs. This particularly includes some popular drugs, such as Ozempic and Wegovy by Novo Nordisk. The rate of increase in these medications for diabetes, and also weight loss, was nearly 35%. The contribution of three two drugs on the spending of prescription drugs was 12.2%.

Hospital care services played the biggest role after prescription drugs. The total spending on this sector was $1.5 trillion in 2023 after a growth of 10.4%. This was the biggest rise in around three decades. Clinical services, with an increase of 7.4%, were the third biggest contributor to these US healthcare costs.

Role of Obamacare

The Affordable Care Act, commonly known as Obamacare, played a significant role in increasing the US healthcare budget in 2023. commercial insurers had the largest share of spending. Their share rose by 30% in 2023 compared to 19.5% in 2022, recording an increase of nearly 10.5% year on year. The factors that caused this mammoth increase were increased enrollment in two plans: the ACA plans, or Obamacare, and the employer-sponsored health plans.

The Affordable Care Act became effective in 2010. However, the number of its enrollees skyrocketed in the last year. It happened due to the introduction of the 2021 American Rescue Plan Act and the 2022 Inflation Reduction Act. These two acts reduced the cost of premiums for enrollees by enhancing subsidies. Therefore, a large number of people became eligible for the program, increasing healthcare costs. Consequently, 2.7 million additional people registered for ACA in 2023, ultimately increasing the US healthcare system costs.

On the other hand, the rise in private health insurance increased by 1.6%. According to this report, 92% of Americans had health insurance in 2023, slightly up from 2022. All these factors are increasing pressure on the US federal budget. The coming US federal government is considering changes in these programs due to the impact of rising healthcare costs.

Concluding Remarks

The US healthcare spending has increased significantly in 2023 due to the rise in the cost of health insurance. The largest rise was seen in the spending on prescription drugs, hospital care services, and clinical services. New acts in previous years also increased enrollees in the ACA, also known as Obamacare. This also increased the burden on the US healthcare budget significantly.