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 slowed a bit in recent quarters

The Quarterly Services Survey provides to most up-to-date look at national health spending, though it does not include spending on prescription drugs, medical equipment, and other health-related expenses that are not considered services. The most recent two quarters of 2017 have seen somewhat slower growth in spending on health services than in recent years.

Total health expenditures have increased substantially over the past several decades

Health spending totaled $74.6 billion in 1970.  By 2000, health expenditures had reached about $1.4 trillion, and in 2016 the amount spent on health had more than doubled to $3.3 trillion. Total health expenditures represent the amount spent on healthcare and health-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 nearly 29-fold over the last four decades, from $355 per person in 1970 to $10,348 in 2016. In constant 2016 Dollars, the increase was almost 6-fold from $1,762 In 1970 to $10,348 in 2016.

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 the U.S. devoted 6.9% of its gross domestic product to total health spending (both through public and private funds).  By 2016 the amount spent on health had increased to 17.9% of GDP. Health spending as a share of the economy often increases during economic downturns and remains relatively stable during expansionary periods.

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

From 1970 – 1980, the average annual growth in the U.S. economy was 9.2% per year, compared to health spending growth of 12.2%. Although health spending growth has since moderated, it generally continued to outpace growth of the economy, though by a somewhat smaller margin. The 2010 – 2013 period, however, saw an average annual growth rate in health expenditures that was similar to growth in GDP.  Health spending did pick back up in 2014 and 2015 with the coverage expansions of the Affordable Care Act.

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

The rate of growth for medical services (e.g. physicians/clinic, 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. Between 2010 and 2016, spending on both prescription drugs and physicians/clinics grew an average of 4.4%, and spending grew at a similar pace for hospitals and clinics (4.7%).

Hospital and physician services represent half of total health spending

Hospital spending represented 32% of overall health spending in 2016, and physicians/clinics represent 20% of total spending. Prescriptions accounted for 10% of total health spending in 2016, which is up from 7% of total spending in 1970.

Out-of-pocket spending represents a smaller portion of total expenditures than it did in 1970

Although out-of-pocket costs per capita have been rising, most of the growth in health expenditures is from insurance coverage. Out-of-pocket spending, though higher per person than it was in 1970, now makes up a smaller share of total health expenditures.

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

In dollar terms, out-of-pocket expenditures have grown steadily since 1970, averaging $1,093 per capita in 2016, up from $119 per capita in 1970 ($590 in 2016 dollars). Out-of-pocket medical costs are in addition to the amount individuals contribute towards health insurance premiums.

Health insurance represents a growing share of total health expenditures, particularly public programs

Most of the recent health spending growth is in insurance programs, both private and public. Private insurance expenditures now represent 34% of total health spending (up from 21% 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 2016 (up from 22% in 1970).

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 growth 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 over time but have recently moderated

In 2016, administrative expenses – which include the cost of administering private insurance plans and public coverage programs but not the administrative costs of health providers – represented 8% of total national health expenditures, up from about 4% in 1970.

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 has been relatively flat in recent years, however, following the Great Recession.

Prices have historically driven health services spending growth, but use is now the primary driver

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. Price growth slowed in the 2000s, and following the recession, utilization grew as price growth continued to fall. In recent years, utilization – likely driven by coverage gains under the Affordable Care Act – has been the dominant driver of health services spending.

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 the economy

From 1980 to 2008, per capital national health expenditures grew faster than the Consumer 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.