National health care spending will reach $4.3 trillion in 2021

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Brief description of the dive:

  • National health care spending rose nearly 3% in 2021, reaching $4.3 trillion, as large increases in health care use and insurance coverage were offset by lower government spending on COVID-19.
  • The growth rate for the year was less than the 10% seen in 2020. CMS actuaries attributed the slowdown to lower federal health care spending, which fell 3.5% in 2021 compared to a 37% increase in 2020 as funding to fight the pandemic skyrocketed.
  • Health care spending grew much more slowly than the nation’s gross domestic product, which increased by 11 percent in 2021—the largest growth rate since 1984.

Dive Insight:

Spending on medical products and services continued to rise in 2021 to $12,914 per person that year, although the share of the economy devoted to health care spending shrank slightly, according to the CMS Office of Actuary analysis published in Health Affairs on Wednesday.

Health care spending skyrocketed in 2020 while US GDP declined due to the pandemic.

But those trends reversed last year as the economy recovered and the government spent less on COVID-19 programs, causing health spending to fall to 18.3 percent of GDP in 2021, down from 19 .7% in 2020.

The biggest contributor to the slowdown was a drop in spending on COVID-19 and other federal health care programs. That’s “clearly the dominant story here,” Health Affairs Editor-in-Chief Alan Weil said during a Wednesday media briefing on the report.

Government spending on programs – including the Supplier Assistance Fund and the Wage Protection Program – is down 63% from $193.1 billion in 2020 to $71.9 billion in 2021.

Federal spending on public health activities, including vaccine development, is down 42% from $135.8 billion in 2020 to $78.8 billion in 2021.

Meanwhile, national health care spending, excluding government spending, actually increased by almost 8% in 2021. That compares with just over 2% growth in 2020.

Federal programs boosted health care spending in 2020, but not in 2021

Components of National Health Expenditure Growth, 2019-2021

Payer costs for hospital care, physician and clinical services and dental services increased, in part because of pent-up demand for elective surgeries and procedures postponed during the pandemic, researchers said.

“There’s always been a question of when usage will recover, to what extent, to what extent will it fully recover,” Weil said, calling the trend “a critical part of the story.”

Private health insurance grew 5.8% in 2021 and remained responsible for the largest percentage of total health spending by payer type, at 28%.

Medicare spending rose 8.4%, while Medicaid growth remained broadly flat over the year at 9.2%.

Out-of-pocket costs jumped 10.4 percent, the fastest growth rate since 1985, according to the analysis, as consumers spent more on dental services and durable medical equipment.

Spending growth nationally was slower for hospital care and physician and clinical services, but faster for prescription drugs, actuaries found.

Hospital spending rose 4.4% in 2021 to reach $1.3 trillion, but slowed from 2020 as federal program spending declined even as utilization increased. Hospitals continue to earn the lion’s share of U.S. healthcare dollars overall.

Where did America’s health care dollar go last year?

Percentage of total health care spending by basic goods and services, 2021

Expenses for physician and clinical services increased by 5.6%.

Meanwhile, retail prescription drug spending rose 7.8%. That acceleration was driven mainly by a rise in prescription drug use amid rebounding doctor visits and more new drugs prescribed in 2021, even though prices fell for a fourth straight year, researchers said.

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