Examining the Trends and Implications of Health Spending in the U.S.

The Centers for Medicare & Medicaid Services (CMS) recently announced that health spending in the U.S. reached a staggering $4.5 trillion in 2022, representing a 4.1% increase from the previous year. While this growth is higher than the 3.2% increase observed in 2021, it falls significantly short of the remarkable 10.6% growth experienced in 2020. During a reporter briefing sponsored by Health Affairs, Anne Martin of the National Health Statistics Group in the CMS Office of the Actuary highlighted that the decline in growth rates in 2021 and 2022 can be attributed to the diminished COVID-19-related federal spending that occurred in 2020 in response to the pandemic.

According to the CMS report, approximately 83% of the national health expenditure was allocated to personal healthcare goods and services. The net cost of health insurance accounted for 6% of expenditure, while public health activity and healthcare investment each represented 5%. Government administration costs accounted for the remaining 1% of the expenditure. When examining how the funds were disbursed in more detail, it was found that 30% of healthcare dollars were directed towards hospital care, followed by 23% on “other spending” which included dental services, home health services, and durable medical equipment. Physician and clinical services accounted for 20% of the expenditure, and prescription drugs represented 9%.

Spending in the physician and clinical services category in 2022 was reported to be $884.9 billion, indicating a 2.7% increase compared to the previous year. However, this rate of growth was slower than the 5.3% increase in 2021. Multiple factors contributed to this deceleration, including reduced spending growth in this category by Medicare, Medicaid, and out-of-pocket payments, as well as a slowdown in the growth of prices. Aaron Catlin, the deputy director of the National Health Statistics Group, pointed out that spending on independent laboratory tests also experienced slower growth, largely due to a decrease in the number of COVID tests conducted in 2022.

On the other hand, retail prescription drug spending saw a significant increase of 8.4% in 2022, surpassing the growth rates of 6.8% in 2021 and 4.4% in 2020. This rise in prescription spending can be attributed to increased utilization by Medicare, the out-of-pocket category, and Medicaid. Additionally, there was a notable upturn in prescription drug prices, with a 1.2% increase following four years of decline.

Contributing to the vast expenditure on healthcare, 72% of funding came from health insurers such as Medicare, Medicaid, private health insurance, and other government payers including the Department of Veterans Affairs, the Department of Defense, and the Children’s Health Insurance Program. Out-of-pocket spending accounted for 11% of the funds, while 8% derived from other third-party payers and programs, such as Workers’ Compensation, school health programs, and the Indian Health Service. Furthermore, Medicare spending reached $944.3 billion in 2022, a 5.9% increase partially attributed to the nearly 2% rise in Medicare enrollment. However, per-enrollee spending dropped by 3.8%, primarily due to reduced growth in spending for hospital care and physician and clinical services. The spending was evenly divided between beneficiaries enrolled in fee-for-service Medicare and those enrolled in Medicare Advantage plans operated by private health insurers. In contrast, total spending on Medicaid was lower than Medicare at $805.7 billion, representing close to a 10% increase and three consecutive years of steady growth. Enrollment growth in the program remained robust at 7.2%.

Notably, the number of uninsured individuals in the U.S. decreased for the third consecutive year. Starting at 31.8 million in 2019, the figure dropped to 31.2 million in 2020, then 28.5 million in 2021, and closing at 26.6 million in 2022. Simultaneously, the insured segment of the population gradually increased from 90.3% in 2019 to 92.0% in 2022. Micah Hartman of the National Health Statistics Group at CMS attributed this change to more individuals purchasing insurance through the Affordable Care Act marketplaces and an increased uptake of employer-sponsored insurance.

Despite the staggering growth in health spending, last year’s healthcare expenditure as a percentage of the Gross Domestic Product (GDP) decreased to 17.3% from its peak of 19.5% in 2020. Remarkably, this figure aligns with the average of 17.5% witnessed from 2016 to 2019. During the briefing, Hartman highlighted the significance of this share, shedding light on the overall affordability of healthcare in the U.S.

While health spending in the U.S. continues to rise, the growth rate slowed in 2021 and 2022. Various factors, including the decline of COVID-19-related federal spending, influenced these trends. The allocation of funds primarily favored personal healthcare goods and services, with hospital care accounting for the largest share. Furthermore, physician and clinical services experienced a deceleration in growth, while prescription drug spending saw a notable increase. The contributions to healthcare funding came predominantly from health insurers, with Medicare and Medicaid playing significant roles. Subsequent advancements in healthcare coverage led to a decline in uninsured individuals and an increase in the insured population. Finally, the healthcare share of GDP decreased from its peak but remained consistent with preceding years. These trends and their implications provide valuable insights into the dynamics of healthcare spending in the U.S.

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