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 insights into changes in health spending over time as well as the driving forces behind spending growth. The data specifically show how health spending and consumption in 2020 deviated from historic trends due to the COVID-19 pandemic.

Total health expenditures increased steeply in 2020

Health spending totaled $74.1 billion in 1970. By 2000, health expenditures had reached about $1.4 trillion, and in 2020 the amount spent on health tripled to $4.1 trillion. Health spending increased by 9.7% from 2019 to 2020, much faster than the 4.3% increase from 2018 to 2019. The average annual growth in health spending from 2010-2019 was 4.2%. 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.

Spending is shown in terms of both nominal dollar values (not inflation-adjusted) and constant 2020 dollars (inflation-adjusted based on the personal consumption expenditures (PCE) index).

Growth in health spending from 2019 to 2020 was driven in part by an increase in public health spending

Total national health expenditures grew by nearly $365 billion in 2020 compared to 2019. About one-third (nearly $119 billion) of that growth in spending can be attributed to the increase in spending on public health, which includes federal spending to develop COVID-19 vaccines under Operation Warp Speed, strategic stockpiles of drugs and vaccines, and health facility preparedness. An increase in hospital expenditures contributed 20.9% of the growth, which reflects increased federal payments and loans to hospitals for COVID-19 relief (through the Provider Relief Fund and Paycheck Protection Program), as well as increased Medicaid spending. Meanwhile, health spending on dental services and research, structures, and equipment declined from the prior year.

Spending on public health activities and federal programs including the Provider Relief Fund and Paycheck Protection Program drove the 9.7% increase in overall health spending from 2019 to 2020; when these spending categories are excluded, overall health spending increased only 1.9% from 2019 to 2020. Health services spending plunged early in the pandemic as care was delayed or cancelled.

Federal spending on public health increased dramatically in 2020

Spending on public health grew sharply from 2019 to 2020, driven by federal spending in response to the COVID-19 pandemic. Federal public health spending increased 864%, from $13.3 billion to $128.2 billion. Meanwhile, state and local public health spending grew 4.2%, in line with previous years.

On a per capita basis, health spending experienced an uptick in 2020

On a per capita basis, health spending has increased sharply in the last five decades, from $353 per person in 1970 to $12,531 in 2020. In constant 2020 dollars, the increase was from $1,875 in 1970 to $12,531 in 2020.

Health spending accounts for nearly one-fifth of the U.S. economy

The share of the gross domestic product (GDP) devoted to health care reached 19.7% in 2020, an uptick from prior years. While the pandemic drove increases in total health spending in 2020, GDP declined 2.2% that year.

Health spending growth slowed in recent decades but consistently exceeds GDP growth

From 1970 through 1980, the average annual per capita 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 continues to outpace growth of the economy.

In the last decade, spending growth on hospitals, physicians, and prescriptions has slowed

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 2020, average spending growth on prescription drugs and physicians/clinics was 3.2% and 4.7%, respectively. Spending grew at a similar pace for hospitals (4.6%).

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Hospital and physician services represent half of total health spending

Hospital spending represented close to a third (31%) of overall health spending in 2020, and physicians/clinics represented 20% of total spending. Prescription drugs accounted for 8% of total health spending in 2020.

Per capita out-of-pocket expenditures decreased in 2020

Out-of-pocket expenditures dropped in 2020, averaging $1,181 per capita. (Out-of-pocket medical costs do not include the amount individuals contribute toward health insurance premiums.)

Utilization of services dropped precipitously in March and April of 2020, and slowly increased, though not quite to pre-pandemic levels. Furthermore, in 2020, many insurers voluntarily waived cost-sharing for COVID-19 treatment.

It remains to be seen how both COVID-19 and the forgone care due to the pandemic affect individuals’ long-term health outcomes and overall costs.

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 27.9% 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 40.2% of overall health spending in 2020 (up from 22% in 1970). Although out-of-pocket costs per capita have generally 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 typically grown faster than Medicare and Medicaid spending

Per enrollee spending by private insurance grew by 46.8% from 2008 to 2020 — much faster than both Medicare and Medicaid spending growth per enrollee (28.2% and 21.2%, respectively). Generally speaking, private insurance pays higher prices for healthcare than Medicare and Medicaid.

However, per enrollee spending in private insurance declined by 0.4% in 2020 from 2019, while it continued to increase in Medicare and Medicaid (1.4% and 4.0% respectively) though at a slower pace than in 2019. Spending in 2020 was volatile – with increased care related to COVID, decreased use of services for non-COVID care, and higher spending related to insurance overhead and profit – resulting in different patterns across payers.

Per enrollee spending growth has slowed in the past decade 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 spending on health exceeded private spending in 2020

Public and private health spending have both grown substantially in the past few decades. In 1987, public sector spending accounted for just under one third (32%) of total health spending. Public spending in 2020 represented half (51%) 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.

Health insurance and administrative costs have been increasing for several decades

In 2020, administrative expenses – which include the cost of administering private insurance plans and public coverage programs but not the administrative costs of health providers – represented 8.5% of total national health expenditures, up from about 3.5% in 1970, and 7.6% in 2019.

Health utilization dropped dramatically in 2020, while prices increased modestly

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). In 2020, healthcare prices increased by 2.5%, in line with previous years, but health services use dropped by 8.4%. The decrease in health utilization was largely driven by the COVID-19 pandemic, as many health services, such as elective surgeries, were postponed or cancelled. Many individuals also chose to forgo care to keep themselves and their families safe.

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

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 grown fairly steadily since the mid-1990s (ranging in growth from about 1% to 5% annually), while the utilization index has changed more over time.

National health spending per capita spiked in 2020, though general economic price inflation was modest

Health spending per capita increased by 9.3% between 2019 and 2020. The Personal Consumption Expenditure (PCE) price Index (inflation) grew 1.2%, in line with previous years. Trends going forward may change. In 2021, prices for food, energy, and motor vehicles grew rapidly. There has not yet been a measurable impact of inflation in the health sector at this point. Since many provider payment contracts are set in advance, there is a lag time in health sector prices reflecting the inflation in labor, goods, and services.   

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.

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