Health Care Expenditures in the USA

Main Category: Nursing / Midwifery
Article Date: 28 Feb 2004 - 0:00 PDT

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National Center for Health Statistics


After 25 years of double-digit annual growth in national health expenditures, the rate of growth slowed during the 1990s.

At the end of the decade the rate of growth started edging up again. Since the millennium, the rate has accelerated.

This high rate of growth combined with a sluggish economy has resulted in health care expenditures claiming a larger share of the gross domestic product (GDP).

The United States continues to spend more on health than any other industrialized country.

In 2001 national health care expenditures in the United States totaled $1.4 trillion, increasing 8.7 percent from the previous year compared with a 7.4 percent increase in 2000. In the mid-1990s annual growth had slowed somewhat, following an average annual growth rate of 11 percent during the 1980s.

The United States spends a larger share of the GDP on health than does any other major industrialized country. In 2000 the United States devoted 13.3 percent of the GDP to health compared with 10.6-10.7 percent each in Germany and Switzerland and 9.1-9.5 percent in Canada and France, countries with the next highest shares.

In 2001 health expenditures as a percent of the gross domestic product (GDP) increased to 14.1 percent, up from 13.3 percent the previous year.

The rate of increase in the medical care component of the Consumer Price Index (CPI) was 4.7 percent in 2002 and 4.6 percent in 2001, compared with 3.4 percent per year during 1995-2000. During the last 3 years, the CPI for hospital services showed the greatest price increases (6-7 percent in 2000 and 2001 and 9 percent in 2002), compared with other components of medical care.

Expenditures by Type of Care and Source of Funds

During the last few years expenditures for prescription drugs have grown at a faster rate than any other type of health expenditure. The sources of funds for medical care differ substantially according to the type of medical care being provided.

Expenditures for hospital care accounted for 32 percent of all national health expenditures in 2001. Physician services accounted for 22 percent of the total in 2001, prescription drugs for 10 percent, and nursing home care for 7 percent.

Since 1995 the average annual rate of increase for prescription drug expenditures (on average 15 percent per year between 1995 and 2001) was higher than for any other type of health expenditure. During the first half of the decade expenditures for home health care increased more rapidly (19 percent per year between 1990 and 1995) than other types of expenditures.

In 2001 prescription drug expenditures increased 16 percent, and prescription drugs posted a 5-percent rate of price increase in the Consumer Price Index in both 2001 and 2002.

In 2001, 47 percent of prescription drug expenditures were paid by private health insurance (up from one-quarter at the beginning of the decade), 31 percent by out-of-pocket payments (down from 59 percent in 1990), and 17 percent by Medicaid.

Although Medicare is the federal program that funds health care for persons age 65 years and over, and older persons are the highest per capita consumers of prescription drugs, Medicare paid only 2 percent of prescription drug expenses in 2001.

In 1999, 88 percent of persons age 65 years and over in the civilian noninstitutionalized population had a prescribed medicine expense. The average annual out-of-pocket prescribed medicine expense per older person with expense was $614, an increase of 16 percent over the previous year.

In 1999, 95 percent of persons age 65 years and over in the civilian noninstitutionalized population reported medical expenses averaging about $6,300 per person with expense. Sixteen percent of expenses were paid out-of-pocket, 14 percent by private insurance, and two-thirds by public programs (mainly Medicare and Medicaid).

The burden of out-of-pocket expenses for health care varies considerably by age. In 1999 one-third of persons 75 years of age and over with expenses paid $1,000 or more in out-of-pocket expenses compared with 18 percent of those 45-64 years of age.

Eight percent of those 18-44 years of age incurred out-of-pocket expenses of $1,000 or more in 1999, compared with only 1 percent of children under 6 years of age.

In 2001, 33 percent of personal health care expenditures were paid by the Federal Government and 11 percent by State and local government; private health insurance paid 35 percent and consumers paid 17 percent out-of-pocket.

In 2001 the major sources of funds for hospital care were Medicare (30 percent) and private health insurance (34 percent). Physician services were also primarily funded by private health insurance (48 percent) and Medicare (20 percent). In contrast, nursing home care was financed primarily by Medicaid (48 percent) and out-of-pocket payments (27 percent).

In 1999 the average monthly charge per nursing home resident was $3,891. Residents for whom the primary source of payment was private insurance, family support, or their own income paid close to the average charge, compared with an average monthly charge of $5,800 when Medicare was the primary payor and $3,500 when Medicaid was the primary source of payment.

In 1998 less than one-fifth of mental health expenditures incurred by mental health organizations was for State and county psychiatric hospitals. In 1975 this share was nearly one-half of expenditures. The decline in the proportion of mental health expenditures for State and county psychiatric hospitals reflects the shift from inpatient to outpatient mental health care.

Publicly Funded Health Programs

The two major publicly funded health programs are Medicare and Medicaid. Medicare is funded through the Federal Government and covers persons 65 years of age and over and disabled persons for their health care. Medicaid is jointly funded by the Federal and State Governments to provide health care for certain groups of low-income persons. Medicaid benefits and eligibility vary by State.

In 2001 the Medicare program had 40 million enrollees and expenditures of $245 billion.

In 2001 hospital insurance (HI) accounted for 59 percent of Medicare expenditures. Expenditures for home health agency care decreased to 3 percent of HI expenditures in 2001, down from 13 percent in 1997.

In 2001 supplementary medical insurance (SMI) accounted for 41 percent of Medicare expenditures. Seventeen percent of SMI expenditures in 2001 were payments to managed care organizations, compared with 20-22 percent in the previous 3 years. One-half of the $84 billion SMI paid for fee-for-service utilization in 2001 went to physicians under the physician fee schedule.

Of the 33 million Medicare enrollees in the fee-for-service program in 2000, 11 percent were 85 years of age and over and 15 percent were under 65 years of age.

Among fee-for-service Medicare enrollees age 65 years and over, payments in 2000 increased with age from an average of $4,000 per year per enrollee for those age 65-74 years to $7,700 for those 85 years and over. Average payments per fee-for-service enrollee increased in 2000 after declining the previous 2 years.

In 1999, 81 percent of Medicare beneficiaries were non-Hispanic white, 9 percent were non-Hispanic black, and 7 percent were Hispanic. Some 20-24 percent of Hispanic and non-Hispanic black beneficiaries were persons under 65 entitled to Medicare through disability, compared with 11 percent of non-Hispanic white beneficiaries.

In 2000 Medicare payments per fee-for-service enrollee varied by State, ranging from less than $4,000 in Hawaii and New Mexico to more than $6,300 in New York, New Jersey, Maryland, the District of Columbia, and Louisiana.

In 2000 Medicaid vendor payments totaled $168 billion for 43 million recipients.

In 2000 children under the age of 21 years accounted for 46 percent of Medicaid recipients but only 16 percent of expenditures. Aged, blind, and disabled persons accounted for one-quarter of recipients and 70 percent of expenditures.

In 2000, 21 percent of Medicaid payments went to nursing facilities, 14 percent to inpatient general hospitals, 15 percent to capitated payment services, and 12 percent to prescribed drugs.

In 2000, Medicaid payments per recipient varied by State from less than $2,300 in California and Tennessee to $7,600 in New York. On average payments per recipient were lower in the Southeast, Southwest, and Far West States than in the New England and Mideast States.

In 2002 spending on health care by the Department of Veterans Affairs was $23 billion. Forty-one percent of inpatients and 34 percent of outpatients were low-income veterans without a service-connected disability.

Private Health Insurance

More than 70 percent of the population under 65 years of age has private health insurance, most of which is obtained through the workplace. In private industry, the share of employees' total compensation devoted to health insurance decreased in 2002.

Between 1995 and 2001 the age-adjusted proportion of the population under 65 years of age with private health insurance fluctuated between 71 and 73 percent after declining from 77 percent in 1984. More than 90 percent of private coverage was obtained through the workplace (a current or former employer or union) in 2001.

In 2002 private employers' health insurance costs per employee-hour worked were $1.29, largely unchanged from $1.28 in 2001, and an increase from $1.09 in 2000. Among private employers the share of total compensation devoted to health insurance was 5.9 percent in 2002, down from 6.2 percent in 2001 but higher than the 2000 share, 5.5 percent.

Health Maintenance Organizations

An HMO is a prepaid health plan delivering comprehensive care to members through designated providers. More than one-quarter of all persons in the United States were enrolled in HMO in 2002. HMO enrollment peaked in 1999 and has declined slowly since then.

Enrollment in HMOs totaled 76 million persons or 26 percent of the U.S. population in 2002. HMO enrollment varied from 20-21 percent in the Midwest and South to 33 percent in the Northeast and 38 percent in the West. HMO enrollment increased steadily through 1999 but declined by more than 5 million between 1999 and 2002. The number of HMO plans decreased by 22 percent to 500 plans during these 3 years.

In 2002 the percent of the population enrolled in HMOs varied among the States, from 0 in Alaska to 51 percent in California. States with the next highest HMO enrollment were Massachusetts with 42 percent and Connecticut, Rhode Island, and Maryland, each with at least 35 percent.

In 2001, 27-29 percent of children under 18 years of age and adults age 18-44 and 45-64 years had health insurance coverage through a private HMO. Nine percent of children had coverage through a Medicaid HMO while less than 3 percent of adults under 65 years of age had this coverage.

State Health Expenditures

Total personal health care per capita expenditures and its components vary substantially among the States. State expenditures are affected by factors such as population age structure and health, payment rates, and supply of services.

Personal health care per capita expenditures averaged $3,800 in 1998, but varied among the States from $2,700 in Utah to $4,800 in Massachusetts. Higher expenditures were clustered in the New England and Mideast States, with lower per capita expenditures in the Rocky Mountain, Southwest, and Far West States.

The components of personal health care expenditures vary significantly by State. Hospital care per capita expenditures in 1998 ranged from $1,016 in Utah to $1,807 in Massachusetts. Physician and other professional services per capita expenditures varied from $763 in Utah to $1,347 in Minnesota. Per capita expenditures for nursing home care ranged from $90 in Alaska to $860 in Connecticut.

Twenty-one percent of all personal health care expenditures were paid by Medicare in 1998, up from 17 percent in 1991. The Medicare share of State health expenditures in 1998 varied from 9 percent in Alaska to 25-26 percent in Mississippi, Louisiana, and Pennsylvania and 28 percent in Florida.

The share of personal health care expenditures paid by Medicaid increased from 13 percent in 1991 to 16 percent in 1995 through 1998. The Medicaid share of personal health care expenditures in 1998 ranged from less than 10 percent in Nevada and Virginia, to 21 percent in the District of Columbia, Rhode Island, and Maine, and 32 percent in New York.