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Growth is likely to be partially offset by enrollment changes in the segment, prompted by a shift from fully insured to self-insured businesses that could accelerate as employers seek to cut costs if the economy slows.

We also estimate commercial segment profit pools to rebound as EBITDA margins likely return to historical averages by 2027. Finally, the duals population enrolled in managed care is estimated to grow at more than a 9 percent CAGR from 2022 through 2027. 1 Congressional Budget Office Baseline Projections, May 2023 Medicare Advantage penetration was increasing by less than 2 percent annually from 2016 to 2019 but increased by about 3 percent annually in 20-for further information, see “Medicare Advantage/Part D contract and enrollment data,” Centers for Medicare & Medicaid Services, US Government. Medicare Advantage enrollment has grown historically by 9 percent annually from 2019 to 2022 however, we estimate the growth rate will reduce to 5 percent annually from 2022 to 2027, in line with the latest Centers for Medicare & Medicaid Services (CMS) enrollment data. Enrollment in Medicare Advantage, and particularly the duals population, will continue to grow. Several factors will likely influence shifts in profit pools. On the other hand, some segments will continue to see slow growth, including general acute care and post-acute care within health systems, and Medicaid within payers (Exhibit 1).

Within pharmacy services, with specialty pharmacy continuing to experience rapid growth.

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Within HST, the software and platforms businesses (for example, patient engagement and clinical decision support).

Within health systems, outpatient care settings such as physician offices and ambulatory surgery centers, driven by site-of-care shifts.

Within payer, Medicare Advantage, spurred by the rapid increase in the duals population the group business, due to recovery of margins post-COVID-19 pandemic and individual.

Several segments can expect higher growth in profit pools: Profit pools continued under pressure in 2023 due to high inflation rates and labor shortages however, we expect a recovery beginning in 2024, spurred by margin and cost optimization and reimbursement-rate increases. We estimate that healthcare profit pools will grow at a 7 percent CAGR, from $583 billion in 2022 to $819 billion in 2027. The fastest growth in healthcare may occur in several segments Powered by adoption of technology, healthcare services and technology (HST) businesses, particularly those that offer measurable near-term improvements for their customers, will continue to grow, as will pharmacy services players, especially those with a focus on specialty pharmacy.īelow, we provide a perspective on how these changes have affected payers, health systems, healthcare services and technology, and pharmacy services, and what to expect in 2024 and beyond. On the healthcare delivery side, financial performance will continue to rebound as transformation efforts, M&A, and revenue diversification bear fruit.

But Medicare Advantage and individual segment economics have held up well for payers.Īs we look to 2027, the growth of the managed care duals population (individuals who qualify for both Medicaid and Medicare) presents one of the most substantial opportunities for payers. Eligibility redeterminations in a strong employment economy have hurt payers’ financial performance in the Medicaid segment.

Skilled nursing and long-term-care profit pools continue to weaken. Even so, health-system margins are lagging behind their financial performance relative to prepandemic levels. Much of the improvement is the result of transformation efforts undertaken over the last year or two by healthcare delivery players, with healthcare payers acting more recently.

The acute strain from labor shortages, inflation, and endemic COVID-19 on the healthcare industry’s financial health in 2022 is easing.