Health Affairs
January/February 2003
Trends In U.S. Health Care Spending, 2001
by Katharine Levit, Cynthia Smith, Cathy Cowan, Helen Lazenby, Art Sensenig,
and Aaron Catlin (from the Centers for Medicare and Medicaid Services)
Abstract
U.S. health care spending grew 8.7 percent to $5,035 per capita in 2001. Total public funding continued to accelerate, increasing 9.4 percent and exceeding private funding growth by 1.2 percentage points. This acceleration was due in part to increased Medicaid spending in the midst of a recession and payment increases for Medicare providers. Prompted by sluggish economic growth and by faster-paced health spending, health spending’s share of GDP spiked 0.8 percentage points in 2001 to 14.1 percent.
Conclusion
While health spending accelerated in 2001, growth remains less than the long-run historical rate of 10.2 percent experienced from 1960 to 2000. A gap in growth between health care sponsors’ decelerating revenues and increasing health care costs has emerged in 2001, forcing these sponsors to reexamine spending priorities. Many employers may have already taken preemptive actions by 2002 that shift a portion of rising costs to workers. At the same time, federal and state government obligations could increase if a prolonged recession causes the number of uninsured people to rise. States may have to resort to more austere decisions to balance Medicaid budgets in FY 2002 than they did in 2001.
Managed care’s influence has waned in the past few years, contributing to acceleration in hospital and overall spending. Hospital spending growth was proportional to its share of total health spending in 2001, a condition not met in recent years. Hospitals are seeing growth in demand for services and higher input prices, including rising wages resulting from shortages of health care workers, which further contributes to escalating costs.
The disparity between GDP growth and health care spending trends caused health spending’s share of GDP to spike in 2001. Historically, large increases in the health share of GDP have prompted private initiatives or public policy changes that slowed the pace of health spending growth. In uncertain economic times, health care sponsors may be less able to shoulder the escalating costs of health care, forcing trade-offs between health care and other competing priorities. As health care costs rise, consumers may be asked to contribute more toward existing coverage, or their choice of plans, providers, and benefits may be narrowed.