We Spent Nearly 10% More in 2020 for Less Health Care

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The government’s comprehensive annual report on health spending last year has been released. It shows that spending rose by nearly 10 percent to more than $4.1 trillion, fueled by big increases in government COVID spending.

National health expenditures (NHE) rose from 17.6 percent to 19.7 percent of the gross domestic product, their largest one-year jump ever, according to the Centers for Medicare & Medicaid Services (CMS). In 2020, the U.S. gross domestic product was nearly $21 trillion.

Digging through the numbers, which many media outlets have done, it’s clear that traditional measures of health inflation cannot be applied to last year. Overall, Americans used less health care last year. The spending surge was driven by federal government programs for COVID prevention and treatment.

On the currently quaint premise that policy should be driven by facts, spending time with the NHE data is essential. As I have lamented before, the U.S. spends nearly twice as much on health care per person as other developed nations.

Polls regularly report that people think their care is pretty good, but the data say otherwise. Here’s a detailed look at how the health of Americans’ care compares with that provided elsewhere in the world. There are lots of reasons other than health spending for our health profile But there’s also no doubt that health spending here has been uncontrollable for a long time. We buy a lot of unneeded, low-quality care, and the people and companies that provide it make much more money than their non-U.S. peers.

Here are news stories on the NHE report from the New York Times, Wall Street Journal, Modern Healthcare, Axios, and Politico.

And here are two tables from the report that I have cited in prior-year NHE posts. The first shows the different types of care where health dollars are spent. The second shows how this care is paid for.

National health expenditures (NHE) by spending category
2018 2019 % 2020 %
NHE $3,604.50 $3,759.10 4.3 $4,124.00 9.7
 Health consumption expenditures 3,415.90 3,564.20 4.3 3,931.30 10.3
  Personal health care 3021.8 3,175.20 5.1 3,357.80 5.8
   Hospital care 1,122.60 1,193.70 6.3 1,270.10 6.4
   Professional services 978.90 1,022.40 4.4 1,069.30 4.6
    Physician and clinical services 736.9 767.9 4.2 809.5 5.4
    Other professional services 104.5 111.3 6.5 117.4 5.6
    Dental services 137.5 143.2 4.2 142.4 -0.6
   Other health, residential, and personal care 191 195.7 2.4 208.8 6.7
   Home health care 105.6 113 7.0 123.7 9.5
   Nursing care facilities and continuing care retirement communities 167.6 174.2 3.9 196.8 13.0
   Retail outlet sales of medical products 456 476.3 4.4 489.1 2.7
    Prescription drugs 324.2 338.1 4.3 348.4 3.0
    Durable medical equipment 54.5 57 4.9 54.9 -3.7
    Other nondurable medical products 77.5 81.1 4.7 85.7 5.7
  Government administration 46.3 47.4 2.3 48.4 2.1
  Net cost of health insurance 248.1 236.6 -4.6 301.4 27.4
  Government public health activities 99.7 105 5.3 223.7 113.1
 Investment 188.6 194.9 3.4 192.7 -1.2
  Noncommercial research 53.6 56.2 4.9 60.2 7.0
  Structures and equipment 135 138.7 2.7 132.5 -4.5

 

 

National health expenditures (NHE) by source of funds
Expenditure amount ($ billions) 2018 2019 % 2020 %
NHE $3,604.50            3,759                4.3            4,124                9.7
 Health consumption expenditures 3,415.90            3,564                4.3            3,931              10.3
  Out of pocket 386.5               404                4.4               389              (3.7)
  Health insurance 2,613.30            2,726                4.3            2,809                3.0
   Private health insurance 1,131.00            1,166                3.1            1,151              (1.2)
   Medicare 749.4               801                6.9               830                3.5
   Medicaid 596.4               614                3.0               671                9.2
    Federal 372.2               387                4.1               460              18.8
    State and local 224.2               227                1.3               211              (7.0)
   Other health insurance programs 136.5               145                6.2               157                8.4
  Other third-party payers and programs 316.3               329                4.1               510              54.8
   Other federal programs 12.8                 14                9.3               194         1,282.0
   Other third-party programs 303.5               315                3.9               316                0.2
  Public health activity 99.7               105                5.3               224            113.1
   Federal 12.1                 13              10.3               128            864.5
   State and local 87.7                 92                4.6                 96                4.2
  Investment 188.6               195                3.4               193              (1.2)
           

 

The big disconnect here is that U.S. health consumers pay only about 10 percent of personal health consumption out of their own pockets. The rest is paid by insurance premiums and government spending, which of course ultimately come out of taxpayer pockets as well.

Under the current system, true health costs are hidden from consumers, but we pay the bill in other ways. Wage levels are reduced so employers can fork over their share of premiums to private health insurers. Tax rates or, in recent years, government budget deficits, are raised to cover federal and state spending.