05/12/2024, 15:39 The future of health care spending | Deloitte Insights

Article 17 minute read · 09 February 2021

Breaking the cost curve

Deloitte predicts health spending as a percentage of GDP will
decelerate over the next 20 years

Kulleni Gebreyes
United States

Andy Davis, FSA, MAAA

United States

Steve Davis
United States

Maulesh Shukla
India

See more

Deloitte health actuaries project a deceleration in health spending, likely creating a US$3.5 trillion

“well-being dividend” by 2040. Explore what the future of health could look like—a dramatic

transformation driven by new business models, emerging technologies, and highly engaged

consumers.

Executive summary

In 2019, health care spending in the United States topped US$3.8 trillion dollars—
nearly 18% of the gross domestic product (GDP)—as projected by the Centers for
Medicare & Medicaid Services (CMS) Office of the Actuary. Prior to the COVID-
19 pandemic, the agency had projected health spending would continue to grow at

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a rate of 5.3% a year, reaching nearly US$6.2 trillion by 2028.If those increases
were to continue unabated over the next 20 years, health spending could reach a
staggering US$11.8 trillion by 2040. Although the pandemic caused people to defer
care throughout much of 2020, a rebound and then continuation of the trends
beyond 2021 would drive health care spending to historic levels in the coming
years.

What is well-being?

Merriam-Webster broadly defines well-being as “the state of being prosperous, happy,

and healthy.” Deloitte further defines well-being as wholistic (distinct from holistic)
where the health of the whole individual is considered. This includes physical and
mental health as well as spiritual, social, emotional, equitable, and even financial
health. Achieving and maintaining a state of well-being might encompass everything
from a healthy diet and exercise, to addressing drivers of health and inequity, to using
cell and gene therapy, and other advanced therapies, to prevent, treat, or cure today’s
illnesses.

The continued upward trend, however, is unlikely to endure, according to models

developed by our health care actuaries in collaboration with leaders from our
health sector. We anticipate that emerging technologies, an ability to cure and
prevent disease (or detect disease in the earliest stages), and highly engaged
consumers will lead to a deceleration of health spending between now and 2040.
While our actuarial models are based on prepandemic data, we anticipate spending
growth will continue to decelerate. We predict three realities will take shape by
2040:

Future reality #1: A US$3.5 trillion well-being dividend. By 2040, we estimate

that health spending will be US$8.3 trillion. The US$3.5 trillion difference (by
2040) between our model and CMS’s projection (continued to 2040) is what we
call a well-being dividend—the return on investment for tools, systems, or

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protocols that help consumers to take an active role in their health and well-being
(for Deloitte’s definition of well-being, see sidebar, “What is well-being?”).

Future reality #2: A shift in spending. In 2019, about 80% of health spending went
toward care and treatment. By 2040, we expect 60% of spending will go toward
improving health and well-being. New-generation well-being activities will likely
empower consumers to monitor their health through technologies that can sense
early signals of disease in asymptomatic people, and address drivers of health early.
Activities related to health and well-being are expected to account for nearly two-
thirds of spending by 2040.

Future reality #3: A new health economy, different from today’s business models,
will drive 85% of revenue. We believe three major changes will likely impact
incumbent health care stakeholders, driving more revenue. These include:

The end of the general hospital as we know it

The slowdown of mass-produced biopharma

A seismic shift in the way health care is financed

We have defined 10 archetypes—business models, roles, and functions focusing on

well-being and care delivery, data and platforms, and care enablement—that we
expect to drive success in the Future of Health™.

One quarter of US health spending is waste

About 25% of health care spending can be categorized as waste, according to an

1
academic paper developed by researchers at Humana Inc. The study points to
administrative complexities, duplicative services, unnecessary treatments, high drug
prices, and hospital readmissions as examples of waste.

In 2019, Deloitte estimated the United States spent US$4.0 trillion on health. This
estimate includes health spending from the National Healthcare Expenditure
Accounts (NHEA) categories as well as spending on wearables, fitness apps, DNA
testing, genetic services, weightless/nutrition/diet, alternative therapies (e.g.,
acupuncture), and other mental health–related services (e.g., meditation, couple’s
therapy).

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This means that as much as US$935 billion a year could be deemed wasteful
spending. Without this waste, Deloitte estimates health spending would account for
13.9% of the GDP, rather than 18.4%.

While Deloitte’s projection runs counter to historic trends, we believe the US health
care system has already entered the first stage of the Future of Health—a dramatic
transformation that we expect will take place over the next 20 years. This future
will likely be driven by new business models, scientific and technological
breakthroughs, consumers armed with highly personalized data, and regulations
that encourage change. We see this as an unstoppable transformation, meaning that
it will happen regardless of policy or the actions of individual stakeholders.

Has change already arrived?

It has been two years since Deloitte published Forces of change: The Future of
Health, which provides our perspective on how the business of health will
transform by 2040. Since that publication, we have experienced COVID-19, a
global crisis that has not only accelerated the changes we outlined in our vision,
but also identified where our ecosystem still requires significant progress. Rather
than focusing on clinical care and symptomatic diagnoses in 2040, the enterprises
making up this new health system will likely be hyper-focused on early engagement
with consumers. We expect this will drive new business models that integrate data
and support overall well-being. COVID-19, for example, is highlighting some of
the weaknesses in the health system, pushing capacity to the brink, and testing the
very definition of wellness. It has also revealed how vulnerable the health care
industry is to change and its need for structural and technological transformation.

A team of Deloitte actuaries analyzed the financial implications of this Future-of-

Health vision. The team started with the most recent NHEA categories, as well as
spending on wearables, fitness apps, DNA testing, genetic services,
weightloss/nutrition/diet, alternative therapies (e.g., acupuncture), and other mental
health–related services (e.g., meditation, couple’s therapy). That information was
then used to model the impact of the six key areas—data sharing, interoperability,
equitable access, empowered consumers, behavior change, and scientific
breakthrough—that we expect will collectively transform the existing health system
from treatment-based reactionary care to prevention and well-being. In our recent
research paper, Six keys to measuring health care disruption, we discuss the
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activities already underway in each of these areas. The financial impact of each
area will likely differ based on timing, intensity, and the expenditure category.
Based on these trends, the team projected the shift from current businesses to newer
archetypes—roles, functions, and businesses that will drive the Future of Health.
(See appendix for detailed methodology.) Here are the six areas that we expect will
have a profound impact on the health sector over the next 20 years:

1. Data sharing: Data sharing is already underway and will likely continue to
advance. In the years ahead, always-on sensors—embedded in everything from our
shoes and clothes to our bathroom mirrors and toothbrushes—could continuously
gather detailed information about our health. (Imagine a toothbrush that uses
biomarkers to identify heart disease years before symptoms develop.) As we collect
more health data from a far deeper pool of consumers, we will likely learn more
about the nature of illness, how to detect it, treat it, or avoid it. Our research
indicates that 46% of consumers are willing to share their medical information
with health plans and clinicians, and 20% have used technology to measure and
share medication data with their doctors. Example: The Apple Health records
2
feature is now open to all US health care organizations with compatible EHRs.
This feature will allow more than 100 million iPhone® consumers to link their
health data from several sources and share it with their care teams.

2. Interoperable data:On March 9, 2020, the US Department of Health and

Human Services (HHS) finalized its interoperability rules, which HHS Secretary
Alex Azar called “the start of a new chapter in how patients experience American
health care.” The new rules took effect on January 1, 2021. Through
interoperability, the disconnected components of health care (e.g., hospitals,
clinicians, pharmaceutical companies, device manufacturers, researchers, and
health plans) could be replaced by a system where data is securely shared among
stakeholders to create a multifaceted and highly personalized picture of every
consumer’s well-being. Example: Real-world evidence (RWE) based on
interoperable data could lead to more personalized and effective treatments for
cancer and other high-cost diseases.

3.Equitable access:Consumers who aren’t able to access the health system when
needed might wind up with more serious (and costlier) health conditions. Urgent
care facilities, retail clinics, and a growing acceptance of virtual care are making it
easier for patients to meet with care providers in person or via electronic device.
Traditional barriers to health care access, like geography and lack of resources,

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could be significantly reduced. Consumers might also have access to tools that help
them achieve their wellness and health goals. Stay-at-home mandates and risks (real
and perceived) related to seeking in-person care have increased demand and
adoption of virtual care, especially among vulnerable populations. Example:
Deloitte’s COVID-19 survey as of April 2020 showed that 26% Medicare
Advantage members used telehealth or virtual health through the first four months
3
of 2020, compared to just 13% for all of 2019.

4. Empowered consumers: We expect clinicians will work closely with each other,
supported by health plans, to coordinate care for consumers. But highly
personalized health information can allow consumers to take a more active role in
their well-being. Ownership of their health data can increase people’s sense of
responsibility for their well-being. Example: In 2020, more than 40% of surveyed
consumers used devices and technologies to measure fitness and health
improvement goals, compared to just 17% in 2013, according to the Deloitte
4
Center for Health Solutions’ Health Care Consumer Surveys.

5. Behavior change: In 2019, 600 Deloitte employees (from 40 states) began a 36-
week randomized clinical trial to determine if a wearable activity-tracker—
combined with goalsetting, competition, and gamification—would increase
physical activity among overweight and obese adults. We learned that data science
and behavioral economics—if applied correctly—can lead to positive behavior
changes. Example: Mango Health is a patient-adherence platform that uses
gamification and rewards to improve drug adherence, especially among those under
5
chronic care with proven clinical results.

6. Scientific breakthrough: The pandemic forced some researchers to rely more on

digital technology for clinical trials. We have seen an unprecedented level of
collaboration among pharmaceutical companies to develop a COVID-19 vaccine
and rapidly bring it to market. Some regulatory processes have been streamlined to
make it easier to get diagnostic tests and therapies to market more quickly. During
the next 20 years, we expect new preventive and curative advances will emerge at
an exponential pace. We expect biopharmaceutical companies will continue to
develop new ways to prevent, treat, and possibly cure a range of diseases through
vaccines and advancements in cell and gene therapies. At the same time, actionable
health insights—driven by radically interoperable data and smart artificial
intelligence—could help clinicians and consumers identify illness much early than
we do today. Example: Biopharmaceutical companies Pfizer Inc. and Moderna Inc.

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developed their COVID-19 vaccines using messenger RNA (mRNA)—a technology
that had never been used before to develop a commercialized vaccine. Both
companies, based on the clinical trials, reported efficacy rates above 90%. This was
significantly higher than the Food and Drug Administration’s (FDA) requirements
6
of at least 50% efficacy.

We assume these six developments will help shift the spending from areas of waste
to investments that improve individuals’ long-term well-being, helping to curb
growth in health spending (figure 1).

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Future reality #1: A growing well-being dividend could reach US$3.5 trillion by 2040

According to CMS NHEA data, US health care spending as a percentage of the

GDP has increased nearly every year for nearly 60 years—from 5% in 1960 to
18% in 2019. CMS has projected that health spending will continue to grow at an
average rate of 5.3% a year between now and 2028. If this trend was to continue,
health spending in the United States would reach nearly US$12 trillion
(approximately 26% of the GDP) by 2040.

Contrast this with the future we anticipate: Our models show that by 2040, health
spending will make up 18.4% of the GDP (about US$8.3 trillion), driven by a
significant decrease in spending devoted to treatment, and much higher spending
on activities and enterprises that sustain well-being (figure 2).

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The difference between CMS’s projection and Deloitte’s model is about US$3.5
trillion. We refer to this decrease in spending as a well-being dividend. Rather than
bending the cost curve, we see a cost curve that can be broken and rebuilt.

How can $3.5 trillion, freed up from health care spending, help the
US economy

The US government, private enterprises, and consumers can invest this well-being
dividend in areas of potential societal impact, such as improving the infrastructure
and reducing household debts.

Future reality #2: A shift in spending from care and treatment to health and well-being

This US$3.5 trillion well-being dividend comes from the six developments we
expect will trigger a fundamental shift from diagnosis and treatment to well-being
and prevention. The US health care system has historically focused on the
treatment of diseases. For every US$100 spent on health care, about US$80 is
typically spent diagnosing and treating patients after they become sick.

In the future, well-being spending is likely to encompass not only the treatment of
physical and mental illness, but also investments in data and algorithms that help
generate health and well-being insights. This might include things that consumers
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use to stay healthy, such as app-based algorithms that illustrate the impacts of
eating healthy. It might also include enterprises that address the drivers of health
(often referred to as social determinants) and can help address disparities in health
outcomes, like housing, community, adequate food, and other enterprises that
contribute to well-being.

Our models show that spending in these well-being–focused areas will eclipse
treatment-related expenses by 2033. By 2040, we expect spending on well-being to
account for nearly two-thirds of the total health spending—or 11.3% of the GDP
—and spending on treatments and diagnostics to make up the rest (7.1% of GDP).
(see figure 3).

Future of early disease intervention

In this age of technology, many consumer products are becoming smarter. From
smart water bottles that encourage users to stay hydrated to AI-powered smart toilets
that can identify disease in the earliest stages. Technology is also leading to early
detection of some chronic and degenerative diseases. Consider Alzheimer’s disease.
Physicians typically rely on memory tests or tracking of behavioral changes to

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diagnose the disease. This process can be challenging and is often ineffective. By the
time symptoms appear, it is likely too late to delay the onset of the disease. In 2019, a
retinal-imaging platform that uses AI to evaluate eye scans for biomarkers of
Alzheimer's disease received the FDA's “Breakthrough Device” designation. This
technology offers a low-cost, non-invasive, and more importantly, much earlier
7
diagnosis of Alzheimer’s and many more neurological disorders.

Early disease interventions can significantly decrease the overall cost of care, both
pharmaceutical and medical. Consider the following examples:

Future reality #3: A new health economy will drive 85% of revenue

We expect empowered consumers to reward organizations that help keep them

healthy. This will likely spawn new archetypes around well-being and care delivery,
data and platform, and care enablement.

Health care industry incumbents (e.g., health systems, clinicians, health plans, and
life sciences companies) command about 85% of the revenue in the industry today.
However, our model shows that a deceleration in health spending, driven by well-
being and prevention instead of treatment and care, could significantly disrupt how
these organizations conduct business. As a result, we expect a transformation of
three major business models that control the current health care landscape:

1. The end of the general hospital: Care is already shifting away from hospital-
8
based settings to lower acuity, less expensive, more convenient settings.
Consumers will likely continue to drive providers to offer care in settings that are

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aligned with their preferences. Technological advances will likely redefine how care
is delivered. Today, for example, an acute myocardial infarction would likely
require a hospitalization. In the Future of Health, however, this event could be
prevented altogether through the use of always-on sensors and continuous in-home
monitoring. Patients who do need care will likely receive it in highly specialized
settings that are tailored to service a specific need rather than being a “one-stop”
for all disease states and specialties.

2.The slowdown of mass-produced therapies: Biopharmaceutical companies tend

to focus on producing drugs that treat a large swath of the population. In the
Future of Health, biopharma companies will likely see their business operations
shift to focus on individuals rather than groups. As more health data is collected on
individual consumers, we expect biopharma companies will be able to drill down
and analyze patients, and their conditions, in new ways. The insights generated
from this data can be used to develop treatments that are tailored specifically for
the individual. Some companies are already using artificial intelligence for drug
9
discovery in a more targeted way. This could lead to highly effective products that
are customized for an individual’s genetic and behavioral needs. This change can
impact biopharma’s entire value chain, from R&D all the way to how a drug is
prescribed and used by an individual.

3.The change in how health care is financed: Health insurance is financed primarily
by premium payments to private health insurers from employers, individuals, and
government agencies. Health plans pool members’ health-related risks and
redistribute that risk across many individuals. This allows the higher costs of the
less healthy members to be offset by the relatively lower costs of the healthier
members. However, as we see health-related technology advance in terms of
prevention and wellness, some of today’s risks might not be around tomorrow. We
expect we will be able to detect disease sooner, or potentially prevent disease all
together through a series of proactive microinterventions. If this happens,
consumers might want products tailored to their risk profile, as driven by their
lifestyle and behaviors, as opposed to those designed for a broader population.

Business models that focus on wellbeing and care delivery, data and platforms, and
care enablement, are already emerging. These new models are likely to proliferate
quickly and would represent the bulk of health revenue in a future that rewards
wellbeing and provides efficient and effective care when required (figure 4).

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We anticipate that 10 new archetypes—new roles, functions, and business models

focused on keeping consumers healthy—will emerge as winners in this future.
Incumbents that can reinvent themselves will likely become enterprises in one or
more of these archetypes. Organizations emerging as personalized virtual-health
actors, data conveners, and science and insights engines could command about half
of the revenue in the Future of Health (figure 5).

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What does this future mean for all of us?

The health care system we know today is inefficient despite attempts to improve
health outcomes and reduce costs. While we have seen some successes, their impact
has been limited when compared to the overall spending trend. In the future, we
expect the convergence of empowered consumers, interoperable data, and scientific
discovery will lead to an unstoppable shift in our health care system. Here’s how
we expect stakeholders to be affected:

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Industry participants: Market trends indicate that the Future of Health is already
here. With the anticipated exponential growth in innovation, we see clear winners
and losers emerging. An organization’s ability to evolve its business model and
make investments to meet the needs of empowered consumers will likely decide its
future. Incumbents that invest in next-gen capabilities and technologies will likely
experience growth while those that continue to invest in traditional infrastructure
and talent could be left behind. Organizational leaders should rethink their capital
investment strategies, examine the workforce needs of the future, and reframe
regulatory requirements from a compliance function into potential market
opportunities.

New entrants: New entrants could see opportunities to win market share by
addressing the demands of empowered consumers. Organizations from the
technology and retail sectors are redefining the fundamental notion of “health
care” by delivering on convenience, affordability, and a differentiated experience of
care. Regulatory policies that promote increased data sharing, transparency, and
interoperability are lowering the barriers to entry and are creating opportunities to
disintermediate traditional players. The ability to balance innovation with safety
will likely be critical to a sustainable business model.

Government: The government is both an enabler and a beneficiary of this vision of

the future. Government is the primary source of funds for health and social
services, which support well-being and address the drivers of health. Policies
supporting interoperability, data, and equitable access can help ensure the health
care system reaches this future quickly. New and emerging regulatory policies can
continue to empower consumers while protecting their privacy and security.
Government and policy leaders should anticipate and respond to regulations and
requirements that keep up with technological advancements and new consumer
expectations.

Consumers: The Future of Health is driven by broad-based changes in how

consumers view health and well-being. Consumers have the power to demand
increased access to a personalized model of care that integrates clinical insights
with behavioral science and social drivers of health. They can accelerate these
changes by opting to share their data within open platforms that are enabled by
interoperability. Consumers can also benefit from interconnected health
communities where they have ownership of their health data and a shared
responsibility and accountability for their well-being.

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Appendix: Methodology

Deloitte’s health actuarial team built a model that projects the economic
implications of the Future of Health vision on the consumers, businesses, and the
government of the United States. We lay down the four key steps of our model:

1. Projecting health expenditures through 2040 based on historical

trends, and government estimates
We gathered publicly available projections on national health care expenditure
accounts (NHEA) through 2028 by the CMS Office of the Actuary. Additionally,
spending was added to CMS projections to account for items that are not included
in NHEA including wearables, fitness apps, DNA testing, genetic services,
weightless/ nutrition/diet, alternative therapies (e.g., acupuncture), and other
mental health–related services (e.g., meditation, couple’s therapy). This additional
spending accounts for less than 5% of total health spending. The team used the
average growth rate between 2019 and 2028 (5.3%) to project the expenditure
through 2040.

2. Classifying the major spending categories into the current

business archetypes
We classified the expenditures from the major categories of the NHEA accounts
into what we consider as archetypes—businesses, functions—of today.

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3. Assessing the impact of six developments on the current

business archetypes and creation of new business archetypes
We then projected the economic impact of each of the six truths on removing
expenditures from the current business archetypes. We also projected the resultant
new business archetypes created by this shift of spending based on the six
developments. Please note, we did not include spending on social determinants of
health such as food stamps, transportation, social security due to the complexity in
projecting the impact of these costs on health spending.

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4. Projecting national health expenditures by 2040 based on the

new business archetypes of the Future of Health
We projected expenditures (revenue potential) of the new archetypes. We added
these expenditures, and the residue expenditure from the current business
archetypes to arrive at the projected health spending in 2040, based on the Future
of Health trends.

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 End notes

1. William H. Shrank, Teresa L. Rogstad, and Natasha Parekh, “Waste in the US health care
system: Estimated costs and potential for savings ,” Jama Network, October 7, 2019.View in
Article

2. Dave Muoio, “Apple Health Records now available to all US providers with compatible EHRs ,”
MobiHealthNews, June 28, 2019.View in Article

3. Deloitte’s Health Care Consumer Response to COVID-19 Survey, April 2020.View in Article

4. David Betts, Leslie Korenda, and Shane Giuliani, Are consumers already living the future of
health? Key trends in agency, virtual health, remote monitoring, and data-sharing, Deloitte
Insights, August 13, 2020. View in Article

5. Mango Health, “Mango Health announces clinical results, new platform for chronic condition
management, and the hire of Carolyn Jasik MD ,” PR Newswire, May 28, 2015.View in Article

6. Katie Thomas, “New Pfizer results: Coronavirus vaccine is safe and 95% effective ,” New York
Times, November 18, 2020.View in Article

7. Andrea Park, “AI retinal scanner that can detect Alzheimer's given FDA ‘Breakthrough Device’
status ,” Becker’s Hospital Review, May 10, 2019.View in Article

8. Steve Burrill, Wendy Gerhardt, and Ankit Arora, Hospital revenue trends: Outpatient, home,
virtual, and other care settings are becoming more common, Deloitte Insights, February 21,
2020. View in Article

9. Kumar Chebrolu, Dan Ressler, and Hemnabh Varia, Smart use of artificial intelligence in health
care: Seizing opportunities in patient care and business activities, Deloitte Insights, October 22,
2020.View in Article

 Acknowledgements

Deloitte’s health actuarial team—Brian Rush, Maria Fendrich, Alex Vondrum, Stefani Klapperich, Steph Falk,
Sarah Gorzek—conducted the econometric modeling and analysis, and contributed to the writing.

The authors would also like to thank Asif Dhar, Neal Batra, David Betts, Ralph Judah, Doug Beaudoin, Mike
DeLone, Steve Burrill, Lynne Sterrett, and David Biel for their expertise and help in shaping this research. The
authors would also like to thank Sarah Thomas, Laura DeSimio, Ramani Moses, Abrar Khan, Christine Chang,
Claire Cruse, Regina DeSantis, Ellen Conti, Vince Hulbert and the many others who contributed to the success of
this project.

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Breaking the cost curve: Deloitte predicts health spending as a percentage of GDP will decelerate over the next 20
years is an independent publication and has not been authorized, sponsored, or otherwise approved by Apple Inc.
iPhone® is a trademark of Apple Inc.

Cover image by: Taylor Callery

Deloitte’s vision for the future of health

By 2040, there will be a fundamental shift from “health care” to “health.” The
future will be focused on well-being and managed by companies that assume new
roles to drive value in a transformed
health ecosystem. As traditional life sciences and health care roles are being
redefined, Deloitte is
your trusted guide in transforming the role your organization will play.

Andy Davis, FSA, MAAA

Principal
[email protected]
+1 612 397 4174

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