National Health Spending in 2021

This is an annual post I have done for years based on the release by the Office of the Actuary at Health and Human Services of its estimates of national health spending for the prior year.  The data obviously has relevance for understanding spending trends for a category that accounts for about a fifth of the US economy.  The report is available on line but also is summarized in a Health Affairs article.  (HA Article)

As you might imagine, over the last three years health spending has been distorted in multiple ways, some causing increased spending and some causing decreased spending.  For the year covered by the prior report, 2020, spending rose by 10.7%, largely driven by the epidemic and the absurd amounts of money the federal government in particular spent on testing, treatment and vaccines.  For 2021, growth slowed to 2.7%, reaching a total of $4.3 trillion, over $13,000 per person, which is astounding when you consider what great health that has bought for the country.  That is sarcasm, we are a country of overweight, mentally ill and chronic disease beset individuals.  So we don’t get a lot of “health” for our health spending.

The primary factor affecting 2021 spending was the decrease in government spending on the epidemic, which was offset by the beginnings of a return to normal receipt of health care.  Federal government health spending rose 37% in 2020 but declined 3.5% in 2021.  It is likely that in the absence of the epidemic, health spending would have continued on its 4% to 5% annual growth rate each year.  There are a number of ways to categorize health spending–who pays it, who is it paid on behalf of, who receives it.

In 2021, businesses and consumers paid a little over half of the total, with private businesses spending around $735 billion and households about $1.145 trillion.  The federal government paid about 1.46 trillion, some for health insurance for federal employees, military health spending and general public health; but the bulk for Medicare and Medicaid.  State and local governments spent around $630 billion.  While government spending declined as a percent, private business and consumer spending rose by over 6%.  So no matter what people say about health prices and inflation, the reality is that consumers and companies are spending more, noticeably more.

The Medicare and Medicaid federal spending is growing over 10% year-over-year, which is completely unsustainable, to put it mildly.  State government spending is also rising at around 6%.  Consumers paid $430 billion out of pocket for health care, a 10% growth rate and that does not include their share of health insurance premiums.

Who gets the money?  Hospital care cost about $1.32 trillion, up 4.4%; professional services, which includes doctors and other clinicians and some outpatient services, was about $1.16 trillion, up 7.6%; dental care $161 billion, a rise of 16%; home health care $125 billion, increasing .2%; nursing home $181 billion, down 8%; and drugs $378 billion, up 8%.  The decline in nursing home spending is likely due to the large number of CV-19 deaths in this population.  The cost of administering government programs was $51 billion, rising 7%, and the cost of private insurance, which includes administration costs and profits, was $256 billion, a decline of 14% which likely reflects lower profits.

The report estimates that around 94% of Americans have some form of coverage.  Per person coverage costs are rising at about 5.5% for private insurance; 6.6% for Medicare and minus 1.8% for Medicaid.  The Medicaid number is also likely due to the large number of nursing home residents who died during the epidemic; Medicaid being responsible for a large part of nursing home expenditures.

So there you have it, if you want to understand who pays for health care and where the money goes and the trends in spending, the entire article is well worth a read.  I would anticipate that 2022 will still be showing some epidemic impacts and that prices will begin to play a more significant role in increased spending.  As we head into 2023, critical issues, which won’t be addressed by policymakers, are what to do about both Medicare and Medicaid spending, and how to help consumers and businesses with the high burden health spending imposes on them.