National Healthcare Expenditures Soar with Pandemic: $4.1 Trillion in 2020

Dec. 15, 2021
The Medicare program actuaries announced on Dec. 15 that U.S. healthcare spending increased 9.7 percent between 2019 and 2020 to reach a total $4.1 trillion in 2020

The actuaries for the Medicare program on Wednesday, Dec. 15, announced their findings, involving a sharp increase in overall U.S. healthcare expenditures. As the abstract to their article in Health Affairs stated, “US health care spending increased 9.7 percent to reach $4.1 trillion in 2020, a much faster rate than the 4.3 percent increase seen in 2019. The acceleration in 2020 was due to a 36.0 percent increase in federal expenditures for health care that occurred largely in response to the COVID-19 pandemic. At the same time, gross domestic product declined 2.2 percent, and the share of the economy devoted to health care spending spiked, reaching 19.7 percent. In 2020 the number of uninsured people fell, while at the same time there were significant shifts in types of coverage.” The article appears in the January 2022 issue of Health Affairs, but was released early by the publication.

The article stated that “A new analysis from the Office of the Actuary at the Centers for Medicare and Medicaid Services (CMS) published online ahead of print today by Health Affairs estimates that in 2020 health care spending in the United States increased 9.7 percent to $4.1 trillion, or $12,530 per person. The growth rate is much higher than the 4.3 percent growth seen in 2019 and is due to the 36.0 percent increase in federal expenditures for health care that occurred largely in response to the COVID-19 pandemic.”

Further, the article noted, “The share of the economy devoted to health care spending, as measured by the nominal gross domestic product (GDP), was 19.7 percent in 2020, up from a 17.6 percent share in 2019, as GDP declined 2.2 percent in 2020. On a per capita basis, national health spending jumped 9.3 percent in 2020 from a growth of 3.8 percent in 2019.” It noted that the percent of gross domestic product dedicated to healthcare spending had stayed relatively constant over the past decade—it was 17.2 percent in 2010 and 2011, 17.1 percent in 2012, 17.0 percent in 2014, 17.1 percent in 2014, 17.4 percent in 2015, 17.7 percent in 2016 and 2017, 17.6 percent in 2018, and 17.6 percent in 2019, before leaping to 19. Percent in 2020, an extraordinary one-year increase.

The article noted that “Growth in total health care spending in 2020 reflected higher spending by the federal government for three main reasons: provider assistance programs, and in particular the Provider Relief Fund ($122 billion in 2020) and Paycheck Protection Program ($53 billion in 2020), to make up for lost revenue and increased costs resulting from the pandemic; increased federal public health spending; and growth in federal Medicaid payments due to faster enrollment growth and a 6.2-percentage-point increase in federal medical assistance percentage. Federal spending growth accelerated from 5.9 percent in 2019 to 36.0 percent in 2020. Total national health expenditures that exclude spending associated with federal public health and other federal programs increased just 1.9 percent in 2020, slowing from 4.3 percent growth in 2019, due to less use of medical services and goods in 2020.”

“The substantial growth in health care spending was the largest since 2002 and driven by the unprecedented government response to the global pandemic,” said Micah Hartman, a statistician in the CMS Office of the Actuary and first author of the Health Affairs article. “Federal spending increased rapidly in 2020 as the government increased public health spending to combat the pandemic and provided significant assistance to health care providers.” The article also noted that “The number of uninsured individuals fell slightly, from 31.8 million in 2019 to 31.2 million in 2020. However, there were significant shifts in types of coverage, as 2.3 million fewer were covered through employer-sponsored insurance. Conversely, there was a 0.6 million increase in Marketplace enrollment, and Medicaid enrollment grew 3.7 million in 2020, or 5.1 percent—the largest growth since 2015. Medicare enrollment growth slowed in 2020 to 2.1 percent compared with 2.6 percent in 2019.”

The article then went on to look at spending in 2020 by payer type:

•            Private health insurance (1.2 percent decline) reached $1.15 trillion in 2020 and accounted for 28 percent of total national health spending. Private health insurance spending for medical goods and services declined 3.5 percent in 2020, driven by pandemic-related reductions in health care use, particularly for some elective procedures, along with economic shutdowns and moratoriums on certain procedures. On a per enrollee basis, private health insurance spending decreased 0.4 percent in 2020, following 2.3 percent growth in 2019.

•            Medicare spending (3.5 percent growth) reached $829.5 billion in 2020, accounting for 20 percent of total national health care expenditures. Total Medicare spending increased at a slower rate in 2020, at 3.5 percent compared with 6.9 percent growth in 2019. Per enrollee Medicare expenditures slowed to 1.4 percent in 2020 compared with 4.2 percent growth in 2019. Fee-for-service Medicare spending accounted for 55 percent of overall Medicare spending in 2020, down from 61 percent in 2019, reflecting a decline in expenditures for health care goods and services—the first decline in such spending since 1999. Medicare private health plan spending, which accounted for 45 percent of total Medicare expenditures in 2020, grew 17.1 percent, up from 15.3 percent growth in 2019.

•            Medicaid expenditures (9.2 percent growth) reached $671.2 billion in 2020, accounting for 16 percent of total national health spending. Medicaid spending increased 9.2 percent in 2020, a rate approximately three times faster than the growth of 3.0 percent in 2019 due to increased program enrollment. Medicaid hospital spending, which accounted for a third of total Medicaid expenditures, increased 6.7 percent in 2020 compared with 4.6 percent in 2019, driven in part by enrollment growth and increased Medicaid supplemental payments to hospitals, inpatient payments, and payments to mental health facilities. On a per enrollee basis, Medicaid spending growth decelerated slightly to 4.0 percent in 2020 compared with 4.6 percent growth in 2019.

•            Out-of-pocket spending (3.7 percent decline) reached $388.6 billion in 2020, accounting for 9 percent of total national health expenditures. Out-of-pocket spending declined by 3.7 percent in 2020 after a 4.4 percent increase in 2019—the fourth decline in the history of the National Health Expenditure Accounts and the first since the 2009 recession—driven by decreased use and little or no cost-sharing requirements for COVID-19 testing and treatment in 2020.

Major goods and services’ spending in 2020:

•            Hospital spending (6.4 percent growth) reached $1.3 trillion in 2020, representing 31 percent of overall health care spending. Growth in expenditures for hospital care was 6.4 percent in 2020, comparable to 6.3 percent growth in 2019. The growth in 2020 reflected funding from federal programs, including COVID-19 relief, and faster increases in Medicaid spending for hospital care. Out-of-pocket spending for hospital care decreased 12.6 percent in 2020 after an increase of 8.3 percent in 2019. Hospital prices increased 3.2 percent in 2020 compared with 2.0 percent in 2019.

•            Physician and clinical services (5.4 percent growth) spending reached $809.5 billion, or 20 percent of total health care expenditures in 2020. Spending increased 5.4 percent in 2020 after slower growth of 4.2 percent in 2019. This increase was bolstered by funding from federal programs that provided COVID-19 relief and growth in expenditures for independently billing laboratories due to COVID-19-related testing.

•            Retail prescription drugs (3.0 percent growth) expenditures reached $348.4 billion in 2020 and represented 8 percent of overall health spending. The slowdown in spending growth for retail prescription drugs was primarily due to a 4.2 percent decline in out-of-pocket expenditures for retail drugs. Growth in use, as measured by number of prescriptions dispensed, slowed in 2020 to 1.7 percent from a rate of 2.3 percent in 2019. Retail prescription drug prices decreased 0.1 percent in 2020 after a decline of 0.4 percent in 2019 as price growth slowed for brand-name drugs and declined for generic drugs.

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