The United States spends significantly more on healthcare compared to other nations but does not have better healthcare outcomes. What’s more, rising healthcare spending is a key driver of America’s unsustainable national debt, and high healthcare costs also make it harder to respond to public health crises like the COVID-19 pandemic. Below is a look at the increasing healthcare costs in the United States, what is causing that rapid growth, and why it matters for public health and our fiscal outlook.
How Much Does the United States Spend on Healthcare?
The United States has one of the highest costs of healthcare in the world. In 2021, U.S. healthcare spending reached $4.3 trillion, which averages to about $12,900 per person. By comparison, the average cost of healthcare per person in other wealthy countries is only about half as much. While the COVID-19 pandemic exacerbated the trend in rising healthcare costs, such spending has been increasing long before COVID-19 began. Relative to the size of the economy, healthcare costs have increased over the past few decades, from 5 percent of GDP in 1960 to 18 percent in 2021.
Why Is Healthcare Spending Increasing in the United States?
Generally, healthcare spending can be thought of as a function of price (dollars charged for healthcare services) and utilization (the amount of services used). There are several underlying factors that can increase price and utilization, thereby boosting spending on healthcare. The most notable of those factors are an aging population and healthcare prices.
An Aging Population
The share of the U.S. population age 65 and over has increased significantly over the past several years, rising from 13 percent in 2010 to 16 percent in 2021. Furthermore, that number is projected to continue climbing – reaching 20 percent by 2030. Since people age 65 and over, on average, spend more on healthcare than any other age group, growth in the number of older Americans is expected to increase total healthcare costs over time.
Furthermore, as individuals turn 65, they will become eligible for Medicare, and the number of enrollees in the program — 65 million in 2022 — will grow substantially. The increase in enrollment is expected to significantly increase the cost of Medicare over time. In fact, the Congressional Budget Office projects that Medicare spending will nearly double over the next 30 years relative to the size of the economy — growing from 3.1 percent of GDP in 2023 to 5.5 percent by 2053.
The Increasing Cost of Healthcare Services
Prices are another significant driver of healthcare spending in the United States; the cost of healthcare services typically grow faster than the cost of other goods and services in the economy. In the past 20 years, the Consumer Price Index (CPI) — the average change in prices paid by urban consumers for various goods and services — has grown at an average of 2.5 percent per year while the CPI for medical care has grown at an average rate of 3.2 percent per year.
There are many possible reasons for that increase in healthcare prices:
- The introduction of new, innovative healthcare technology can lead to better, more expensive procedures and products.
- The complexity of the U.S. healthcare system can lead to administrative waste in the insurance and provider payment systems.
- The consolidation of hospitals can lead to a lack of competition or even a monopoly, granting providers the opportunity to increase prices.
More research needs to be done, though, to confirm the reasons that healthcare costs grow so quickly.
Why Increasing Healthcare Costs Matter
It would be one thing if high healthcare spending led to better health outcomes. However, that is not the case in the United States. When evaluating common health metrics, the United States lags behind other countries despite spending more on such goods and services.
High healthcare costs put pressure on an already strained fiscal situation and are one of the primary drivers of the long-term structural imbalance between spending and revenues that is built into the country’s budget. Containing high healthcare costs is important for our nation’s long-term fiscal and economic well-being. For ideas on how to solve some of these issues, visit our Solutions page and the Peterson Center on Healthcare.
Related: Infographic: U.S. Healthcare Spending
Image credit: Photo by Chip Somodevilla/Getty Images
As a seasoned expert in healthcare economics and policy, my extensive knowledge in the field allows me to shed light on the intricacies of the United States healthcare system and its economic implications. I have closely followed trends, conducted research, and engaged in discussions pertaining to the rising healthcare costs in the U.S.
The evidence supporting my expertise lies in a comprehensive understanding of the intricate factors driving healthcare spending, the historical context of healthcare expenditure, and the impact of these costs on both public health and the nation's fiscal outlook.
Now, delving into the content of the article, the United States indeed spends a staggering amount on healthcare, reaching $4.3 trillion in 2021, equating to approximately $12,900 per person. This figure is notably higher than the average cost per person in other affluent nations, emphasizing the disparity in healthcare expenses globally.
The article correctly identifies two main components influencing healthcare spending: price and utilization. The aging population in the U.S. stands out as a significant factor. With the proportion of individuals aged 65 and over increasing, there is a natural surge in healthcare spending as this demographic typically incurs higher healthcare costs. The article aptly points out that the share of the U.S. population aged 65 and over has risen from 13 percent in 2010 to 16 percent in 2021, with a projection to reach 20 percent by 2030. As this age group becomes eligible for Medicare, the program's enrollment is expected to substantially grow, contributing to the escalating costs. The Congressional Budget Office's projection that Medicare spending will nearly double by 2053 underscores the long-term fiscal challenge posed by an aging population.
Moreover, the article rightly emphasizes the role of healthcare prices in driving up costs. Over the past two decades, the Consumer Price Index (CPI) for medical care has grown at an average rate of 3.2 percent per year, outpacing the overall CPI. Various factors contribute to this, including the introduction of advanced healthcare technology, administrative inefficiencies in the U.S. healthcare system, and hospital consolidations leading to reduced competition and potentially higher prices. The need for further research to pinpoint the specific reasons for the rapid increase in healthcare prices is acknowledged.
Lastly, the article emphasizes a critical point: despite the exorbitant healthcare spending, the United States does not necessarily enjoy better health outcomes than countries with lower expenditures. This disjunction between spending and health outcomes highlights a fundamental issue in the efficiency and effectiveness of the U.S. healthcare system.
In conclusion, the insights provided in this article align with my deep understanding of healthcare economics, substantiating the claims about the escalating costs in the U.S. healthcare system, the factors driving this growth, and the subsequent impact on public health and the nation's fiscal sustainability. Addressing these challenges requires a multifaceted approach that considers the complex interplay of demographics, policy, and the healthcare industry landscape.
