The $12 Trillion Question: What Will Health Spending look like in 2040? | Deloitte US has been saved
By Steve Davis, manager, Deloitte Center for Health Solutions, Deloitte LP
Health care spending in the US has increased nearly every year over the past four decades, despite efforts to control costs and reduce waste. In 2019, health care spending reached $3.8 trillion—about 18% of the nation’s Gross Domestic Product (GDP)—according to a report released in December by the US Centers for Medicare and Medicaid Services (CMS) Office of the Actuary. In 1960, by contrast, health spending accounted for just 5% of the GDP. If the current trajectory continues, health spending will triple to nearly $12 trillion by 2040, or 26% of the GDP. While such a percentage would likely be unsustainable, our latest research predicts a dramatic slowdown in spending could be just around the corner.
Deloitte modeled a potential future scenario of health care spending based on financial analyses of historical data and emerging market trends. This model looks at the potential for spending trends to stabilize and reverse course over the next 20 years as health care and life sciences companies focus on the prevention, early detection, and treatment of disease, and as consumers gain more control over their own health information. Our analysis demonstrates a potential to hold health care spending to 18.4% of the GDP by 2040. That’s about $3.5 trillion less than the US would likely spend if rates were to continue to grow at the current rate.
The Deloitte Center for Health Solutions (CHS) recently spoke with two of the report’s authors—Andy Davis, FSA, MAAA, principal, and Kulleni Gebreyes, M.D., MBA, principal, Deloitte Consulting LLP, about the new report.
CHS: What do you see as the top challenges for the US health care system and for health care consumers?
Kulleni: The top issues revolve around cost, quality, and access. I have been working in health care for more than 25 years—both as a clinician and as a business leader—and I have experienced those challenges first-hand. This paper is about re-imagining a future where everyone has better access to high quality and more affordable care.
CHS: Using CMS spending estimates, you calculated that the US would spend close to $12 trillion on health care by 2040. But your model projects the US will spend $3.5 trillion less. How did you come up with that number?
Andy: We started by looking into what is driving health care businesses today. Health plans, health systems, clinicians, pharmaceutical companies, and device manufacturers all have their own business models. We took those models and applied what we see as the six truths that will define the Future of HealthTM. Those truths are data-sharing, radical interoperability, equitable access to care, empowered consumers, behavior change, and scientific breakthroughs. We looked at how these factors could push existing business models to evolve. We anticipate that this evolution will take place through three innovation cycles over the next 20 years.
Kulleni: The numbers quantify savings that can potentially be achieved while improving the health of individuals and community. Our analysis explores a shift in focus from disease to a focus on early detection and prevention. This shift creates opportunity to help people maintain their well-being and live healthier lives. The numbers are significant because they represent a health care sector that will meet the needs of consumers more effectively. The numbers also represent our ability to use data and technology to personalize health care in ways that are scalable to the population.
CHS: You refer to this $3.5 trillion difference in spending as a “well-being dividend.” Where does that money come from?
Andy: The well-being dividend represents the difference between continuing to treat illness the way we always have and moving into our 2040 Future of Health vision. There is a substantial amount of waste in health care between administrative overhead and duplicative or unnecessary services. Eliminating those things alone won’t change the path we’re on, but if we combine them with an empowered consumer and changes in behavior, we can get there. Along with managing treatment more effectively, we expect consumers will be more proactive in getting in front of disease. Reinvesting the well-being dividend to create greater health equity is one meaningful opportunity for us to consider. We also should consider additional programs today that extend beyond the analysis of this work to immediately address the health equity crisis we see with health disparities in the US.
CHS: This paper assumes that disease will be detected in its earliest stages or prevented altogether by 2040. What is the financial impact of curing disease, or detecting illness early?
Kulleni : The cost of treating cancer care in the US is estimated to be almost $150 billion a year.1 An estimated 42% of cancers and 45% of cancer deaths are preventable.2 Applying logic to these two data points suggests that a reduction in preventable cancer cases and earlier diagnosis of cancer can potentially avoid or reduce the cost of cancer care. For example, imagine if we could detect non-small-cell lung cancer (NSCLC) in its earliest stages, before expensive treatment is needed. Billions of dollars could be saved on pharmaceuticals and medical treatments. Additionally, new therapies for malignancies such as NSCLC, particularly if introduced earlier, could reduce downstream expenses for later-stage disease. With potential progress in detection modalities, these combined factors together suggest a significant shift in costs, and movement to early treatment and prevention.
CHS: How might that impact the pharmaceutical sector?
Andy: The cost of pharmaceuticals is accelerating faster than most health expenses. But pharmaceutical companies are no longer solely developing blockbuster drugs that can be used by billions of people around the world. They are developing personalized medicines and therapies that cure disease rather than treat the symptoms. They are also developing digital therapies. This could change the trajectory of revenue generated by the pharmaceutical sector.
CHS: Can addressing health equity help reduce health spending?
Kulleni: The COVID-19 pandemic highlighted many of the health inequities that Black, Latinx, and other ethnic minorities have experienced for years. A financial-impact analysis of health care spending in 2018 identified a potential economic gain of $135 billion per year by addressing racial disparities in health care. Specifically, the analysis estimates that health care disparities result in an excess of approximately $93 billion in medical care costs, and $42 Billion in lost productivity.3 Many health care stakeholders that are trying to address the human and economic impact of these disparities are looking beyond the clinical factors to identify opportunities to improve outcomes and reduce costs. Many organization leaders are now examining the drivers of health, which are the social, economic, and political barriers that create challenges in health care. For example, some people may not have insurance coverage, or the ability pay for the care they need. Others might not have transportation to take them to see a doctor. In the Future of Health that we envision, health care stakeholders will have more opportunities to look at people holistically, rather than just evaluating their disease state.
CHS: Deloitte’s Future of Health vision imagines what the health sector will look like by 2040. Are you confident we are on the right path?
Andy: The Future of Health is all about empowering consumers with interoperable data. Even before the COVID-19 pandemic, there were new policies on the horizon that are now in place. For example, the price transparency and interoperability rules that went into effect on January 1, 2021 could be catalysts to the changes we identified in our paper. Each of these rules make critical information readily available for public consumption, such as rates for services or out-of-pocket costs for patients. These new regulations—paired with the on-going response to COVID-19—have forced a continued reliance and trust on virtual and digital solutions, which can help move us close to the Future of Health.
CHS: What do you see as the most important takeaway in this report?
Kulleni: Assuming our perspective becomes reality, we anticipate that some organizations will grow and thrive while others could face significant decreases in revenue and growth. We recommend that all industry players consider the market trends and financial analyses that we used to model the future we’ve outlined in our report. We believe that these can inform near-term, mid-term, and long-term investments that align with the Future of Health and the ability to create a digitally enabled, consumer-centric model of care that reduces cost while improving quality.
1. The high cost of cancer treatment, The Mesothelioma Center at Asbestos.com, 2019
2. More that 4 in 10 cancers and cancer deaths linked to modifiable risk factors, American Cancer Society, November 21, 2017
3. The Business Case for Racial Equity, A Strategy for Growth, W.K. Kellogg Foundation and Altarum, April 2018
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