We noted in Part 1 yesterday that health spending, particularly after adjusting inflation, rose at a good clip in 2023. However, the main cause of the rise wasn’t unit price, but utilization and intensity of treatment. Prices did increase, but greater use of services was more of a factor, likely due to lingering service catch-up from the epidemic and ongoing aging of the population. Private health spending had the highest rate of growth, due to more use of hospital services and drugs. Americans spent over $500 billion out-of-pocket for health care, so the price increases hit consumers directly and they spent another $800 billion on insurance premiums, which are heavily influenced by the cost of health care.
As we continue to return to some semblance of normalcy following the epidemic, spending increased in three major categories. Hospital spending, at $1.5 trillion, rose 10.4%, compared to 3.2% in 2022. Physician and outpatient spending, at $978 billion, went up by 7.4%, compared to 4.6% in 2022. And drug spending, at $450 billion, rose by 11.4% compared to 7.8% in 2022. Drug spending is a particular issue because of many new very expensive medications. The federal government accounted for $1.6 trillion of total health care spending. Households accounted for $1.3 trillion of health spending. Businesses represented $894 billion of health spending and state and local governments $761 billion.
Health spending will continue to rise rapidly, perhaps even accelerate in 2025. That has an impact on government deficits and on inflation. For most consumers it means more spending on health insurance and on medical care. (HA Article)
