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 (CMS). 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 healthcare spending changed in 2021 after deviating from historical trends in 2020 due to the COVID-19 pandemic. A related interactive tool contains more of the latest NHE data.

Total health expenditures increased moderately in 2021

Health spending totaled $74.1 billion in 1970. By 2000, health expenditures had reached about $1.4 trillion, and in 2021 the amount spent on health tripled to $4.3 trillion. Health spending increased by 2.7% from 2020 to 2021, much slower than the 10.3% increase from 2019 to 2020. The average annual growth in health spending during the 2010s was Over the first two years of the COVID-19 pandemic, health spending grew by 13.2% from 2019 to 2021 or 6.4% annually averaged over the 2 years.

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. In the chart above, spending is shown in terms of both nominal dollar values (not inflation-adjusted) and constant 2021 dollars (inflation-adjusted based on the personal consumption expenditures (PCE) index). The federal actuaries deflate health spending in their report using an aggregate of healthcare-specific consumer and producer price indices for specific commodities or services. Using the NHE deflator, real national health expenditures increased by 1.1% from 2020 to 2021.

Growth in health spending from 2020 to 2021 was driven by a return in medical care use and moderated by a decline in public health spending

Total national health expenditures grew by $111 billion in 2021 compared to 2020. About half of that growth in spending can be attributed to the increase in spending on hospital expenditures. An increase in physician and clinical expenditures, retail prescription drugs, medical goods, and dental care also contributed to the growth. The increases were offset by decreases in spending on long-term services, administrative costs, and public health. 

As the pandemic entered its second year in 2021, federal, state, and local public health expenditures fell by $51 billion (-21%) from 2020. Lower than expected medical care utilization in the first year of COVID-19 resulted in higher administrative costs and profits in 2020. However, as use of care resumed in 2021, administrative costs returned to pre-pandemic levels.

Federal spending on public health decreased in 2021 from 2020 but remains above pre-pandemic levels

Spending on public health fell from 2020 to 2021, with the sharp increase in 2020 driven by the federal response to the COVID-19 pandemic. Federal public health spending decreased 42%, from $135.8 billion to $78.8 billion from 2020 to 2021. Meanwhile, state and local public health spending grew 6.1%, in line with previous years.

On a per capita basis, real health spending decreased slightly in 2021

On a per capita basis, health spending has increased in the last five decades, from $353 per person in 1970 to $12,914 in 2021. In constant 2021 dollars, the increase was from $1,951 in 1970 to $12,914 in 2021.

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 as health spending increased and GDP decreased. In 2021, total national health expenditures as a share of GDP fell to 18.3% as the economy recovered and health spending increased moderately. Still, health expenditures represented a larger share of the economy in 2021 compared to pre-pandemic levels.

Health spending growth slowed in recent decades but consistently exceeded GDP growth until 2021

From 1970 through 1980, the average annual per capita growth in the U.S. economy was 9.3% per year, compared to per capita health spending growth of 12.0%. Although health spending growth rate has since moderated, it generally continues to outpace growth of the economy. After a period of recession during the COVID-19 pandemic, the economy recovered in 2021 with GDP per capita increasing 10.6% over 2020. Per capita national health expenditures increased 2.6% from 2020-2021.

In the last decade, spending growth on hospitals 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. From 2020 to 2021, retail prescription drugs experienced the fastest growth in spending at 7.8%, following 3.3% annual average growth from 2010 to 2020. Hospitals and physicians/clinics average spending growth between 2020 and 2021 was 4.4% and 5.6%, respectively.

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Hospital and physician services represent half of total health spending

Hospital spending represented close to a third (31.1%) of overall health spending in 2021, and physicians/clinics represented 20.3% of total spending. Prescription drugs accounted for 8.9% of total health spending in 2021.

Per capita out-of-pocket expenditures increased in 2021

Out-of-pocket expenditures increased in 2021, averaging $1,315 per capita. (Out-of-pocket medical costs do not include the amount individuals contribute toward health insurance premiums.)

Utilization of services dropped precipitously in 2020 when the COVID-19 pandemic hit, and has slowly rebounded. In 2020, as care was deferred, out-of-pocket health spending per capita also declined by 3% from the previous year. However, as in-person care returned in 2021, out-of-pocket spending per capita increased to $1,315 per capita (10.3% increase from the previous year).

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

Private insurance expenditures now represent 28.5% 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 42.5% of overall health spending in 2021 (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 typically grown much faster than Medicare and Medicaid spending

Per enrollee spending by private insurance grew by 54.1% from 2008 to 2021 — much faster than both Medicare and Medicaid spending growth per enrollee (36.9% and 18.9%, respectively). Generally speaking, private insurance pays higher prices for healthcare than Medicare and Medicaid.

Per enrollee spending in Medicaid declined by 1.8% in 2021 from the previous year, while it continued to increase in private insurance and Medicare (5.5% and 6.6% respectively). 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. With medical care resuming in 2021, Medicare and private insurance per enrollee spending grew faster in 2021 over 2020 and compared to the average annual growth rate in the last decade. Medicaid per enrollee spending declined in 2021 as total enrollment grew, particularly among children and non-elderly adults, who generally have lower per enrollee spending.

Per enrollee spending varied in 2021 after decades of growth 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. After a decade of slower growth for all major payers in the 2010s, per enrollee spending increased for Medicare and private insurance and decreased for Medicaid between 2020 and 2021.

Public spending on health nearly matched private spending in 2021

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 2021 represented just under half (49%) of overall spending after briefly exceeding private spending the previous year. 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 2021, administrative expenses – which include the cost of administering private insurance plans and public coverage programs but not the administrative costs of health providers – represented 7.2% of total national health expenditures, up from 3.5% in 1970, and down from 8.3% in 2020.

Health utilization increased dramatically in 2021 as many individuals chose to forego care in 2020

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 2021, healthcare prices increased by 2.9%, in line with previous years, but health services use increased by 7.3%. This increase in healthcare use in 2021 followed a sharp decrease in health utilization in 2020, which 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 reflected in the data. While the price index for drugs grew steadily from the mid-1990s (ranging in growth from about 1% to 5% annually), it decreased by 1.6% between 2020 and 2021.

Unlike health services, pharmaceutical product utilization grew in 2020 over the previous year and the 2021 annual growth rate was similar to the rate seen in recent decades. This is likely in part due to many people stockpiling needed medications early in the pandemic when lockdowns were announced. Additionally, with local delivery or mail-in pharmacies, many people were likely able to continue filling prescription drugs with limited interactions and risk of spreading COVID-19. However, new prescriptions likely declined with fewer doctor visits.

National health spending per capita increased modestly in 2021, though general economic price inflation spiked

Health spending per capita increased by 2.6% between 2020 and 2021. The personal consumption expenditure (PCE) price index (inflation) grew 4.0% in 2021, an increase from previous years. Trends going forward may change. In 2021, prices for food, energy, and motor vehicles grew rapidly. the inflation level in the broader economy. It remains to be seen whether, or to what extent, rising prices in the rest of the economy may eventually affect health prices (or the converse). Thus far, healthcare price increases have not reached   in the broader economy. 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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