Facilities Brace for 5.8% Annual Rise in Healthcare Spending

Last Updated on September 28, 2023

Healthcare leader evaluating revenue spreadsheets on computer to prepare for OACT's Predicted Growth in US Healthcare Spending

After a sharp falloff caused by the pandemic, U.S. healthcare spending is set to rise again, and faster than ever. That’s according to a new estimate from the Centers for Medicare and Medicaid Services’ Office of the Actuary (OACT), which projects that overall health spending will hit $7.2 trillion by 2031. However, what does this mean for leaders tasked with managing long-term healthcare revenue cycles?

Additionally, how will healthcare staffing and growing labor shortages play a part? What parts of the industry will see the biggest increases, and what solutions are available to successfully cope with them? Read on for an analysis of the OACT report, and a look at what it means for healthcare leaders.

> Take a deeper dive the news that matters for clinical leaders: Sign up for the CareerStaff Healthcare Industry Vitals Newsletter today

Summary of the OACT Report on U.S. Healthcare Spending

As every leader knows, growth in U.S. healthcare spending surged and then slowed when the pandemic struck in 2020. It rose to a remarkable 10.3 percent growth rate in 2020 to meet the demands of a national healthcare crisis. But as the pandemic wore on, and organizations had to forego many of the standard procedures that drive revenue, it sank back down to 2.7 percent in 2021.

That setback didn’t last long, though. The growth rate for U.S. healthcare spending began rising again the following year. Though final 2022 numbers aren’t yet available, the OACT estimate puts it at 4.3 percent for that year. That’s more in line with pre-pandemic numbers. In 2019, for instance, the growth rate was almost exactly the same, at 4.2 percent.

But that renewed growth is just beginning. According to the OACT, overall U.S. healthcare spending could reach $7.17 trillion in 2031. That’s almost double the amount for 2019, which was $3.58 trillion. On top of the 4.3 percent projected for 2023, the OACT estimates that growth of U.S. healthcare spending will exceed five percent each year between 2024 and 2031 — climbing as high as 5.6 percent by the end of the period.

U.S. Healthcare Spending Report: Analysis & Key Takeaways

Published at Health Affairs, the OACT numbers predict that health spending will soon grow faster than the overall U.S. economy. By 2031, total U.S. healthcare spending will be almost a fifth of the overall economy. That’s a change from 2022, when it lagged behind growth in domestic national product (GDP).

In addition, spending by private health insurers is projected to increase by 5.4 percent a year. That’s partially due to the end of the public health emergency (PHE), which means that the U.S. government will spend less to support healthcare spending. At the same time, new laws affecting the price of prescription drugs and cap consumer expenses related to them will drive spending in other areas.

Yet Medicare enrollment will remain at historically high levels, as will the number of insured Americans in general. That figure hit an all-time high of 92.3 percent in 2022, and is expected to stay above 90 percent through 2031. Meanwhile, the OACT predicts that Medicaid enrollment will fall to 81.1 million in 2025. That’s after hitting a 2022 “peak of 90.4 million.”

The end result will have a significant financial impact on healthcare facilities. As an analysis published in Modern Healthcare pointed out, “hospital spending will reach $2.34 trillion” in 2031. “Hospital spending is projected to increase an average of 5.8% annually during the 10-year period, compared to 5.3% for physician and clinical services and 4.6% for prescription drugs,” the report adds.  

Why the Projected Growth in Healthcare Spending Matters

For leaders of healthcare organizations, the challenge is a complex one. It means planning for growth that may be rapid but won’t be consistent. Thus, it means planning for a variety of complex factors. “OACT researchers project hospital spending to accelerate, but growth will significantly vary through 2031,” as Jacqueline LaPointe writes at RevCycleIntelligence.com.

For instance, growth in U.S. healthcare spending among hospitals was restricted in 2022 by “staffing challenges and projected declines in private health insurance and out-of-pocket spending,” LaPointe explains. But spending in 2023 is likely to grow faster “as these spending trends reverse and hospital prices increase because of inflation and higher labor costs,” she adds.  

> Need nurses? Submit a nurse staffing request now

Those same challenges can impact other organizations, too, and “could spell trouble for providers” in general, according to an analysis by Amanda Norris at HealthLeaders Media. “Now may be the time to assess your organization’s financial future,” she adds.

“As we know, when national health spending growth increases, reimbursement rates may not keep up, which means hospital leaders may have increased expenses while receiving less revenue. Now is the time to consider strategic decisions regarding the allocation of resources, managing expenses, and revenue growth.”

How to Prepare for the Projected Rise in U.S. Healthcare Spending

For any organization, a sharp uptick in U.S. healthcare spending may be difficult to meet without some strategic preparation. Additionally, that preparation may require solving some of the problems that leaders are already facing. For instance, current challenges around the availability of staff could complicate those preparations, as multiple analysts have pointed out.

However, there are solutions available. For instance, partnering with a leading healthcare staffing and recruitment provider can help organizations adopt a nimbler approach to staffing. With fast, reliable access to thousands of additional workers, leaders can overcome a common roadblock to meeting growth in spending.

In addition, leaders can leverage healthcare managed service providers (MSPs) to streamline key workforce tasks. In doing so, they can achieve greater operational efficiency with faster, more reliable processes. They can also drive cost savings by eliminating common obstacles to successful recruitment. Subsequently, that can free up room in their budgets to bring on more workers, or to address other issues.

CareerStaff Is Standing by to Help

At CareerStaff, we specialize in helping healthcare organizations implement these types of solutions, and more. From nationwide staffing to strategic workforce management services, we’re standing by to help with Joint Commission-Certified and award-winning solutions. Contact us today to learn more, or get started now by submitting a staffing request for your facility.

Submit a Staffing Request Now