How has U.S. spending on healthcare changed over time?

This chart collection explores recently released National Health Expenditure (NHE) data from the Centers for Medicare and Medicaid Services. These data offer insight into changes in health spending over time as well as the driving forces behind spending growth.

Health services spending growth fell in early 2020

The Quarterly Services Survey (QSS) is one way to look at national health spending, though it does not include data on prescription drugs, medical equipment, and other health-related spending categories that are not considered services. The pandemic led to a historic decrease in health services spending due to social distancing and the delay or cancellation of elective procedures. In the second quarter of 2020, health services spending fell by -8.6% over the second quarter of 2019. While health services spending increased in the third quarter of 2020 (1.3%) over the same time in 2019, year-to-date health services spending through the third quarter of 2020 was down by -2.4% (relative to the first three quarters of 2019).

Before the pandemic, total health expenditures increased substantially over the past several decades

Health spending totaled $74.1 billion in 1970. By 2000, health expenditures reached about $1.4 trillion, and in 2019 the amount spent on health more than doubled to $3.8 trillion. Total health expenditures represent the amount spent on health care and related activities (such as administration of insurance, health research, and public health), including expenditures from both public and private funds.

On a per capita basis, health spending has grown substantially

On a per capita basis, health spending has increased over 31-fold in the last four decades, from $353 per person in 1970 to $11,582 in 2019. In constant 2019 dollars, the increase was about 6-fold, from $1,848 In 1970 to $11,582 in 2019.

Health spending growth has outpaced growth of the U.S. economy

Another way to examine spending trends is to look at what share of the economy is devoted to health. In 1970, 6.9% of the gross domestic product (GDP) in the U.S. was spent toward total health spending (both through public and private funds). By 2019, the amount spent on healthcare has increased to 17.7% of the GDP. Health spending as a share of the economy often increases during economic downturns and remains relatively stable during expansionary periods. From 2016 through 2019, the share of GDP attributable to health spending decreased slightly from 17.9% to 17.7%. Although health services spending has decreased in the first three quarters of 2020 relative to the same period in 2019, GDP has decreased more in 2020 over 2019, and therefore, health spending may represent a larger portion of the economy in 2020 than in prior years.

Health spending growth has slowed, and is now more on pace with economic growth

From 1970 through 1980, the average annual growth in the U.S. economy was 9.3% per year, compared to health spending growth of 12%. Although health spending growth has since moderated, it generally continued to outpace growth of the economy, though by somewhat smaller margins in recent years. The periods from 2010 through 2013, and 2016 through 2018, however, saw an average annual growth rate in health expenditures similar to growth in GDP. Health spending did pick back up in 2014 and 2015 with the coverage expansions of the Affordable Care Act and growth has been stable in the years since.

In recent years, spending on hospitals, physicians, and prescriptions has slowed to a similar pace

The rate of growth for medical services (e.g. services provided by physicians/clinics or hospitals) varied by service type until recent years. During the 1970s, growth in hospital expenditures outpaced other services, while prescriptions and physicians/clinics saw faster spending growth during the 1980s and 1990s. Between 2010 and 2019, average spending growth on prescription drugs and physicians/clinics was 4.3% and 4.7%, respectively. Spending grew at a similar pace for hospitals (4.4%).

Hospital and physician services represent half of total health spending

Hospital spending represented close to a third (31%) of overall health spending in 2019, and physicians/clinics represent 20% of total spending. Prescription drugs accounted for 10% of total health spending in 2019, which is up from 7% of total spending in 1970. 

Related Content:

Health Spending

Unvaccinated COVID-19 hospitalizations cost billions of dollars

Health Spending

Insurer filings suggest COVID-19 will not drive health spending in 2022

Per capita out-of-pocket expenditures have grown since 1970

In dollar terms, out-of-pocket expenditures have grown steadily since 1970, averaging $1,240 per capita in 2019, up from $115 per capita in 1970 ($603 in 2019 dollars). Out-of-pocket medical costs do not include the amount individuals contribute toward health insurance premiums.

Health insurance is a growing share of total health expenditures and out-of-pocket spending is a smaller portion than in 1970

Most of the recent health spending growth is in insurance programs, both private and public. Private insurance expenditures now represent 31.5% of total health spending (up from 20.4% in 1970), and public insurance (which includes Medicare, Medicaid, CHIP, and the Veterans Administration and Department of Defense), represented 41% of overall health spending in 2019 (up from 22% in 1970). Although out-of-pocket costs per capita have also been rising, compared to previous decades, they now make up a smaller share of total health expenditures.

On a per enrollee basis, private insurance spending has grown much faster than Medicare and Medicaid spending

Per enrollee spending by private insurance grew by 51.3% from 2008 to 2019 — much faster than both Medicare and Medicaid spending growth per enrollee (26.2% and 16.4%, respectively). Generally speaking, private insurance pays higher prices for healthcare than Medicare and Medicaid.

Per enrollee spending growth has slowed recently for all major payers

On a per enrollee basis, the average annual growth of Medicare spending was similar to that of private insurance over the course of the 1990s and 2000s. Average annual spending growth per enrollee in Medicaid was similar to growth for Medicare and private insurance in the 1990s, but slowed in the 2000s while spending growth accelerated for the other major payers. More recently, per enrollee spending in Medicare and Medicaid has grown somewhat slower than per enrollee spending in private insurance.

Public and private health spending have both grown substantially, but public spending has grown faster

In 1987, public sector spending accounted for just under one third (32%) of total health spending. Since then, health spending through government funds has grown faster than private spending, and public spending now represents almost half (45%) of overall spending. Public sector spending includes spending on insurance programs, such as Medicare and Medicaid, as well as other government spending, such as spending on public health and research.

Administrative costs have risen modestly in the last decade, but dropped in 2019

In 2019, administrative expenses – which include the cost of administering private insurance plans and public coverage programs but not the administrative costs of health providers – represented 7.6% of total national health expenditures, up from about 3.5% in 1970, but down from 8.2% in 2018. The decrease in net cost of health insurance and administration was driven by a decrease in net cost of health insurance. Net cost of health insurance dropped by 3.8% from 2018 to 2019 due to the suspension of the health insurance provider tax starting in 2019.

Spending on public health has increased, particularly by state and local governments

Spending on public health has grown since the 1970s, and the majority of this growth is from state and local governments. Public health spending had been relatively flat in the years immediately following the Great Recession, but has picked up in recent years.

Prices have historically driven health services spending growth, but utilization has grown faster in recent years

Health services spending is generally a function of prices (e.g., the dollar amount charged for a hospital stay) and utilization (e.g., the number of hospital stays). For most of the 1980s and 1990s, healthcare price growth in the U.S. outpaced growth in utilization of healthcare. In recent years, utilization – likely driven by coverage gains under the Affordable Care Act – has grown quicker than prices.

Growth in price and utilization of pharmaceuticals has varied over the past two decades

For much of the past two decades – with the exception of the period surrounding the economic downturn – growth in utilization outpaced growth in pharmaceutical prices. Due to the way drugs are selected for inclusion in the price index, it can take some time for new drugs to be incorporated into the index. The price index for drugs has held relatively stable since the mid-1990s (ranging in growth from about 1% to 5% annually), while the utilization index has changed more over time.

Health spending generally grows faster than general economic inflation

From 1980 to 2008, per capital national health expenditures grew faster than the Personal Consumption Expenditure Price Index (inflation). Starting in 2008, health spending growth slowed to a similar rate as inflation and remained relatively stable at about 3 percent growth per year. In 2014 and 2015, health spending began to grow more rapidly with the Affordable Care Act’s coverage expansion, but slowed once again in 2016 and 2017. Per capita health spending slowed slightly from 2018 to 2019, declining 0.1%.

The Peterson Center on Healthcare and KFF are partnering to monitor how well the U.S. healthcare system is performing in terms of quality and cost.

More from Health System Tracker
A Partnership Of
Share Health System Tracker