Health Spending in the United States

Although it has been overtaken by interest on the federal debt as our number one source of deficit spending, health care costs paid by government, primarily through Medicare and Medicaid are still a big problem, as is total health care spending in this country.  The Peterson Foundation and the Kaiser Family Foundation have issued regular publications on this topic.  A new one discusses spending over a long time, including the tumultous period of the epidemic.  A chart in the report pretty much tells the story.  National health spending was about $75 billion in 1970.  It is $4.5 trillion now.  On a per capita basis it is $13500 a year for every American.  Inflation accounts for some of that growth, but not a lot.  The trend line looks the same using inflation-adjusted dollar, rising from just over $2000 in 1970 to that $13500.  So almost a seven times increase in real spending.

It is pretty long, steady, upward growth, with a sharp blip up during the epidemic which now appears to have returned to that long-term trend.  The epidemic blip was driven by greater public health spending from the federal and state governments.  The biggest drivers over the decades of greater spending have been in the hospital, particularly hospital outpatient, and prescription drug categories.  While health spending as a proportion of GDP has plateaued in recent years, it remains very high, much higher than in other developed countries.  This is largely due to high prices in the US and to our comparatively poor health behaviors.   (PKFF Report)

Government has used its pricing power to keep growth in Medicare and Medicaid spending lower than that for private insurance, resulting in some likely cost-shifting to those private payers by providers.  But the number of people covered by those programs has risen dramatically, so total spending is a huge part of federal, and, in the case of Medicaid, state budgets.  If you decomposed increases in spending between price and utilization, from 1980 to about 1995, price was a noticeably larger factor.  The two then have had a long period of relatively equal contribution to spending rises, although you see occasional bumps in utilization and during the epidemic there was a massive drop in utilization, due to people avoiding going to medical facilities, followed by a rebound.

The growth in spending is paid for by all of us.  We pay higher taxes, we pay more out-of-pocket.  And while there has been some stabilization as a percent of GDP, the federal budget disaster impels finding ways to lower spending on programs like Medicaid and Medicare.  Not going to be fun to address this problem.