The Increasing Cost of Health Care

The Increasing Cost of Health Care

HOW MUCH DOES HEALTH CARE COST?

American society places a high value on human life and generally wantsand expectsquality medical care. However, quality care comes with an increasingly high cost. In 1970 the United States spent 7.2% of its gross domestic product (GDP; the total market value of final goods and services produced within an economy in a given year) on health care. By 2005 health care expenditures reached 16% of the GDP. Table 5.1 shows the growth in health care expenditures, the growth in the GDP, and the annual percent change from the previous year from 1960 to 2005.

For many years the consumer price index (CPI; a measure of the average change in prices paid by consumers) increased at a greater rate for medical care than for any other commodity. From 1980 to 1990 the average annual increase in the overall CPI was 4.7%, whereas the average annual increase in the medical care index stood at 8.1%. (See Table 5.2.) By 2000 the average annual growth in the medical care index had fallen to 3.5%, but in 2006 it had risen again to 4.1%, outpacing overall inflation, which was 3.2%. The medical care index has consistently outpaced the CPI in each decade. Of all the components of health care delivery, the sharpest price increases in 2006 were in hospital services at 6.5%.

The Centers for Medicare and Medicaid Services (CMS) projects that by 2017 the national health expenditure will grow to nearly $4.3 trillion19.5% of the GDP, from 16.3% in 2007. (See Table 5.3.) (Because the numbers in Table 5.3 are projections, they may differ from the actual numbers presented in some other tables and figures.) In NHE Fact Sheet (July 25, 2008, http://www.cms.hhs.gov/NationalHealthExpendData/25_NHE_Fact_Sheet.asp#TopOfPage), the CMS indicates that Medicare accounted for a staggering 18.7% of national care expenditures in 2006.

Generally, projections are most accurate for the near future and less accurate for the distant future. For example, predictions for 2030 should be viewed more warily than predictions for 2010, because it is unlikely that the conditions on which the projections are based will remain the same. As a result, the CMS cautions that its projections should not be viewed as predictions for the future. Rather, they are intended to help policy makers evaluate the costs or savings of proposed legislative or regulatory changes.

Total Health Care Spending

The CMS, along with the Centers for Disease Control and Prevention and the U.S. Government Accountability Office, maintain most of the nation's statistics on health care costs. The CMS reports that the United States spent $2.2 trillion for health care in 2007, which was an increase of 6.7% from $2.1 trillion in 2006. (See Table 5.3.) This rate has decreased since the 9.1% increase in 2002 and is projected to remain relatively constant, although it will likely be as high as three times the rate of inflation through 2017.

Over $2.1 trillion of 2006 health care expenditures came from private funds (out-of-pocket payments, private health insurance, and other private funds), and the balance was paid with public money. (See Table 5.4.) The 2006 per capita cost for health care (the average per individual if spending was divided equally among all people in the country) was $7,026.

Of the $2.1 trillion spent on health care in 2006, close to $1.8 trillion was spent on personal health services (expenses incurred by individuals as opposed to institutions). (See Table 5.5.) Some of the services included hospital care, physician and dental services, nursing and home health care, prescription drugs, and durable medical equipment.

Table 5.5 shows the trends and annual percent changes in personal health care expenditures by category. In 2006 the nation spent $660.2 billion on professional services, by far the largest chunk of personal health care spending, followed by $648.2 billion on hospital costs. This expense was followed by $447.6 billion for physician and clinical services, $216.7 billion for prescription drugs, and $177.6 billion for nursing home and home health care.

Gross domestic product, government expenditures, and national health expenditures 1960 1970 1980 1990 1995 2000 2003 2004 2005
Amount in billions
Gross domestic product (GDP) $526 $1,039 $2,790 $5,803 $7,398 $9,817 $10,961 $11,713 $12,456
Federal government expenditures $87 $201 $586 $1,254 $1,604 $1,864 $2,252 $2,383 $2,556
State and local government expenditures 40 113 329 731 978 1,270 1,515 1,606 1,704
National health expenditures $28 $75 $254 $714 $1,017 $1,353 $1,733 $1,859 $1,988
        Private 21 47 148 427 552 757 956 1,021 1,085
        Public 7 28 106 287 465 596 778 838 903
                Federal government 3 18 72 194 327 417 553 601 644
                State and local government 4 10 35 93 138 179 225 237 259
Amount per capita
National health expenditures $148 $356 $1,102 $2,813 $3,783 $4,790 $5,952 $6,322 $6,697
        Private 111 222 640 1,684 2,053 2,680 3,282 3,472 3,656
        Public 36 134 462 1,130 1,730 2,110 2,670 2,850 3,041
Percent
National health expenditures as percent of GDP 5.2 7.2 9.1 12.3 13.7 13.8 15.8 15.9 16.0
Health expenditures as a percent of total government expenditures
Federal government 3.3 8.8 12.2 15.5 20.4 22.4 24.6 25.2 25.2
State and local government 9.8 9.2 10.6 12.7 14.1 14.1 14.8 14.8 15.2
Percent distribution
National health expenditures 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
        Private 75.3 62.4 58.1 59.8 54.3 55.9 55.1 54.9 54.6
        Public 24.7 37.6 41.9 40.2 45.7 44.1 44.9 45.1 45.4
Average annual percent change from previous year shown
Gross domestic product 7.0 10.4 7.6 5.0 5.8 3.7 6.9 6.3
Federal government expenditures 8.8 11.3 7.9 5.0 3.1 6.5 5.8 7.3
State and local government expenditures 10.9 11.3 8.3 6.0 5.4 6.1 6.0 6.1
National health expenditures 10.5 13.0 10.9 7.3 5.9 8.6 7.2 6.9
        Private 8.5 12.2 11.2 5.2 6.5 8.1 6.8 6.3
        Public 15.3 14.2 10.4 10.1 5.1 9.3 7.8 7.7
                Federal government 20.0 15.0 10.5 11.0 5.0 9.8 8.6 7.2
                State and local government 10.2 12.8 10.3 8.2 5.4 7.9 5.7 9.1
National health expenditures, per capita 9.2 12.0 9.8 6.1 4.8 7.5 6.2 5.9
        Private 7.2 11.2 10.1 4.0 5.5 7.0 5.8 5.3
        Public 13.9 13.2 9.4 8.9 4.1 8.2 6.7 6.7
Category not applicable.
Notes: These data include revisions in health expenditures and may differ from previous editions of Health, United States. The data reflect U.S. Census Bureau resident population estimates as of July 2006, excluding the armed forces overseas and the population of outlying areas. Federal and state and local government total expenditures reflect revisions from the Bureau of Economic Analysis. Percents are calculated using unrounded data. Percents and numbers may not add to totals due to rounding.

WHO PAYS THE BILL?

In general, the government is the fastest-growing payer of health care expenses. From 2002 to 2006 the public share of the nation's total health care bill rose from 45% to 46.1%, and it is projected to rise to 48.6% by 2017. (See Table 5.4.) In 2006 private health insurance, the major nongovernmental payer of health care costs, paid approximately 34.4% of all health expenditures. The share of health care spending from private, out-of-pocket (paid by the patient) funds declined from 13.2% in 2002 to 12.2% in 2006.

Personal Health Care Bill

Much of the increase in government spending has occurred in the area of personal health care. In 2002 government sources paid 43.9% of personal health care expenditures; by 2006 they covered 45.3% of the $1.8 trillion spent on personal health care services. (See Table 5.6.) Of the total expenditures, 35.1% came from the federal government and 10.2% came from state and local governments. Some of the federal increase was attributed to Medicare spending, which grew from 19.1% of all personal health care expenditures in 2002 to 21.6% in 2006.

Items and medical care components 1960 1970 1980 1990 1995 2000 2003 2004 2005 2006
Consumer price index (CPI)
All items 29.6 38.8 82.4 130.7 152.4 172.2 184.0 188.9 195.3 201.6
All items less medical care 30.2 39.2 82.8 128.8 148.6 167.3 178.1 182.7 188.7 194.7
Services 24.1 35.0 77.9 139.2 168.7 195.3 216.5 222.8 230.1 238.9
Food 30.0 39.2 86.8 132.4 148.4 167.8 180.0 186.2 190.7 195.2
Apparel 45.7 59.2 90.9 124.1 132.0 129.6 120.9 120.4 119.5 119.5
Housing 36.4 81.1 128.5 148.5 169.6 184.8 189.5 195.7 203.2
Energy 22.4 25.5 86.0 102.1 105.2 124.6 136.5 151.4 177.1 196.9
Medical care 22.3 34.0 74.9 162.8 220.5 260.8 297.1 310.1 323.2 336.2
Components of medical care
Medical care services 19.5 32.3 74.8 162.7 224.2 266.0 306.0 321.3 336.7 350.6
           Professional services 37.0 77.9 156.1 201.0 237.7 261.2 271.5 281.7 289.3
                   Physicians' services 21.9 34.5 76.5 160.8 208.8 244.7 267.7 278.3 287.5 291.9
                   Dental services 27.0 39.2 78.9 155.8 206.8 258.5 292.5 306.9 324.0 340.9
                   Eye glasses and eye carea 117.3 137.0 149.7 155.9 159.3 163.2 168.1
                   Services by other medical professionalsb 120.2 143.9 161.9 177.1 181.9 186.8 192.2
           Hospital and related services 69.2 178.0 257.8 317.3 394.8 417.9 439.9 468.1
                   Hospital servicesb 115.9 144.7 153.4 161.6 172.1
                          Inpatient hospital servicesb, c 113.8 140.1 148.1 156.6 167.5
                         Outpatien t hospital servicesa, c 138.7 204.6 263.8 337.9 356.3 373.0 395.0
                 Hospital rooms 9.3 23.6 68.0 175.4 251.2
                         Other inpatient servicesa b 142.7 206.8
                         Nursing homes and adult day careb 117.0 135.2 140.4 145.0 151.0
               Health insuranced 103.1
Medical care commodities 46.9 46.5 75.4 163.4 204.5 238.1 262.8 269.3 276.0 285.9
        Prescripti on drugs and medical supplies 54.0 47.4 72.5 181.7 235.0 285.4 326.3 337.1 349.0 363.9
        Nonpresc ription drugs and medical suppliesa 120.6 140.5 149.5 152.0 152.3 151.7 154.6
                 Internal and respiratory over-the-counter drugs 42.3 74.9 145.9 167.0 176.9 181.2 180.9 179.7 183.4
                 Nonprescription medical equipment and supplies 79.2 138.0 166.3 178.1 178.1 179.7 180.6 183.2
Average annual percent change from previous year shown
All items 2.7 7.8 4.7 3.1 2.5 2.2 2.7 3.4 3.2
All items excluding medical care 2.6 7.8 4.5 2.9 2.4 2.1 2.6 3.3 3.2
All services 3.8 8.3 6.0 3.9 3.0 3.5 2.9 3.3 3.8
Food 2.7 8.3 4.3 2.3 2.5 2.4 3.4 2.4 2.4
Apparel 2.6 4.4 3.2 1.2 0.4 2.3 0.4 0.7 0.0
Housing 8.3 4.7 2.9 2.7 2.9 2.5 3.3 3.8
Energy 1.3 12.9 1.7 0.6 3.4 3.1 10.9 17.0 11.2
Medical care 4.3 8.2 8.1 6.3 3.4 4.4 4.4 4.2 4.0
Components of medical care
Medical care services 5.2 8.8 8.1 6.6 3.5 4.8 5.0 4.8 4.1
        Professio nal services 7.7 7.2 5.2 3.4 3.2 3.9 3.8 2.7
                 Physicians' services 4.6 8.3 7.7 5.4 3.2 3.0 4.0 3.3 1.5
                 Dental services 3.8 7.2 7.0 5.8 4.6 4.2 4.9 5.6 5.2
                 Eye glasses and eye carea 3.2 1.8 1.4 2.2 2.4 3.0
                  Services by other medical professionalsa 3.7 2.4 3.0 2.7 2.7 2.9
        Hospital and related services 9.9 7.7 4.2 7.6 5.9 5.3 6.4
                 Hospital servicesb 7.7 6.0 5.3 6.5
                       Inpatient hospital servicesb, c 7.2 5.7 5.7 7.0
                       Outpatien t hospital servicesa, c 8.1 5.2 8.6 5.4 4.7 5.9
               Hospital rooms 9.8 11.2 9.9 7.4
                       Other inpatient servicesa 7.7
                       Nursing homes and adult day careb 4.9 3.8 3.3 4.1
               Health insuranced

WHY HAVE HEALTH CARE COSTS AND SPENDING INCREASED?

The increase in the cost of medical care is challenging to analyze, because the methods and quality of health care change constantly and as a result are often not comparable. A hospital stay in 1970 did not include the same services offered in 2008. Furthermore, the care received in a physician's office today is not comparable to that received a generation ago. One contributing factor to the rising cost of health care is the increase in biomedical technology, much of which is now available for use outside of a hospital.

Many other factors also contribute to the increase in health care costs. These include population growth, high salaries for physicians and some other health care workers, and the expense of malpractice insurance. Escalating malpractice insurance costs and professional liability premiums have prompted some physicians and other health care practitioners to refrain from performing high-risk procedures that increase their vulnerability or have caused them to relocate to states where malpractice premiums are lower. Furthermore, to protect themselves from malpractice suits, many health care practitioners routinely order diagnostic tests and prescribe treatments that are not medically necessary and do not serve to improve their patients' health. This practice is known as defensive medicine, and even though its precise contribution to rising health care costs is difficult to gauge, industry observers agree that it is a significant factor.

Items and medical care components 1960 1970 1980 1990 1995 2000 2003 2004 2005 2006
aDecember 1986 100.
bDecember 1996 100.
cSpecial index based on a substantially smaller sample.
dDecember 2005 100.
Average annual percent change from previous year shown
Medical care commodities 0.1 5.0 8.0 4.6 3.1 3.3 2.5 2.5 3.6
        Prescripti on drugs and medical supplies 1.3 4.3 9.6 5.3 4.0 4.6 3.3 3.5 4.3
        Nonpresc ription drugs and medical suppliesa 3.1 1.2 0.6 0.2 0.4 1.9
                 Internal and respiratory over-the-counter drugs 5.9 6.9 2.7 1.2 0.8 0.2 0.7 2.1
                 Nonprescription medical equipment and supplies 5.7 3.8 1.4 0.0 0.9 0.5 1.4
Data not available.
Category not applicable.
Notes: Consumer price index for all urban consumers (CPI-U) U.S. city average, detailed expenditure categories. 1982 1984 100, except where noted. Data are not seasonally adjusted. Data are based on reporting by samples of providers and other retail outlets.

Other factors include advanced biomedical procedures requiring high-technology expertise and equipment, redundant (excessive and unnecessary) technology in hospitals, cumbersome medical insurance programs and consumer demand for less restrictive insurance plans (ones that offer more choices, benefits, and coverage, but usually mean higher premiums), and consumer demand for the latest and most comprehensive testing and treatment. Legislation that increased Medicare spending and the growing number of older adults who use a disproportionate amount of health care services have also accelerated health care spending.

In Health Spending Projections through 2017: The Baby-Boom Generation Is Coming to Medicare (Health Affairs, vol. 27, no. 2, February 26, 2008), Sean Keehan et al. express a concern shared by many industry observers: Health is projected to consume an expanding share of the economy, which means that policymakers, insurers and the public will face increasingly difficult decisions about the way health care is delivered and paid for. The researchers observe that health care will account for as much as one-fifth of the U.S. economy in the coming decade, growing at about 6.7% per year until 2017. Spending for hospital care will increase at a rate of 6.9% a year, spending for physician services will rise 5.9% annually, and spending on nursing homes will grow 5.2% a year. Much of this increase is attributable to the enormous baby-boom generation (people born between 1946 and 1964), which will soon be eligible for government-sponsored health care. The first wave of baby boomers will become eligible for Medicare in 2011. Keehan et al. predict that baby-boom Medicare enrollees will contribute 2.9 percentage points to growth in Medicare spending by 2017.

CONTROLLING HEALTH CARE SPENDING

In an effort to control health expenditures, the nation's health care system underwent some dramatic changes. Beginning in the late 1980s employers began looking for new ways to contain health benefit costs for their workers. Many enrolled their employees in managed care programs as alternatives to traditional, fee-for-service insurance. Managed care programs offered lower premiums by keeping a tighter control on costs and utilization and by emphasizing the importance of preventive care. Insurers negotiated discounts with providers (physicians, hospitals, clinical laboratories, and others) in exchange for guaranteed access to employer-insured groups. In 2006 private insurance and other private funds paid for 40.5% of the nation's health costs. (See Table 5.4.) Public sources covered 48.6% of the nation's costs, and 12.2% of the costs came directly from consumers' pockets.

Projected
Item 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
a2000 base year. Calculated as the difference between nominal personal health care spending and real personal health care spending. Real personal health care spending is produced by deflating spending on each service type by the appropriate deflator (PPI, CPI, etc.) and adding real spending by service type.
bJuly 1 Census resident based population estimates.
National health expenditures (billions) $1,603.4 $1,732.4 $1,852.3 $1,973.3 $2,105.5 $2,245.6 $2,394.3 $2,555.1 $2,725.8 $2,905.1 $3,097.8 $3,305.0 $3,523.6 $3,757.0 $4,007.8 $4,277.1
National health expenditures as a percent of gross domestic product 15.3% 15.8% 15.9% 15.9% 16.0% 16.3% 16.6% 16.9% 17.1% 17.4% 17.7% 18.0% 18.4% 18.8% 19.1% 19.5%
National health expenditures per capita $5,560 $5,952 $6,301 $6,649 $7,026 $7,439 $7,868 $8,329 $8,816 $9,322 $9,862 $10,439 $11,043 $11,684 $12,369 $13,101
Gross domestic product (billions) $10,469.6 $10,960.8 $11,685.9 $12,433.9 $13,194.7 $13,801.7 $14,450.3 $15,158.4 $15,916.3 $16,712.1 $17,514.3 $18,320.0 $19,144.4 $20,025.0 $20,946.2 $21,909.7
Gross domestic product (billions of 2000 $) $10,048.8 $10,301.0 $10,675.8 $11,003.4 $11,319.4 $11,557.1 $11,799.8 $12,083.0 $12,397.2 $12,719.5 $13,024.8 $13,311.3 $13,590.8 $13,889.8 $14,195.4 $14,507.7
Gross domestic product implicit price deflator (chain weighted 2000 base year) 1.042 1.064 1.095 1.130 1.166 1.196 1.220 1.248 1.278 1.309 1.340 1.372 1.405 1.439 1.473 1.509
Consumer price index (CPI-W)19821984 base 1.799 1.840 1.889 1.953 2.016 2.064 2.122 2.182 2.243 2.305 2.370 2.436 2.505 2.575 2.647 2.721
CMS implicit medical price deflatora 1.078 1.118 1.163 1.204 1.245 1.285 1.328 1.372 1.419 1.468 1.519 1.574 1.632 1.694 1.760 1.829
U.S. populationb 288.4 291.1 294.0 296.8 299.7 301.9 304.3 306.8 309.2 311.7 314.1 316.6 319.1 321.5 324.0 326.5
        Population age less than 65 years 253.2 255.7 258.1 260.4 262.9 264.6 266.4 268.2 270.0 271.6 272.9 274.0 275.2 276.4 277.5 278.5
        Population age 65 years and older 35.2 35.5 35.9 36.4 36.7 37.3 37.9 38.6 39.2 40.0 41.2 42.5 43.8 45.1 46.5 47.9
Private health insuranceNHE (billions) $552.5 $602.8 $645.8 $685.6 $723.4 $769.4 $821.7 $878.8 $936.0 $995.4 $1,058.0 $1,124.3 $1,192.0 $1,263.4 $1,338.0 $1,415.3
Private health insurancePHC (billions) 482.4 521.2 560.2 598.6 634.6 676.4 720.3 767.2 817.8 872.1 927.8 986.1 1,046.8 1,110.4 1,176.5 1,245.2
National health expenditures (billions) 8.0 6.9 6.5 6.7 6.7 6.6 6.7 6.7 6.6 6.6 6.7 6.6 6.6 6.7 6.7
National health expenditures as a percent of gross domestic product 3.2 0.3 0.1 0.5 2.0 1.8 1.7 1.6 1.5 1.7 2.0 2.0 1.9 2.0 2.0
National health expenditures per capita 7.1 5.9 5.5 5.7 5.9 5.8 5.9 5.8 5.7 5.8 5.9 5.8 5.8 5.9 5.9
Gross domestic product (billions) 4.7 6.6 6.4 6.1 4.6 4.7 4.9 5.0 5.0 4.8 4.6 4.5 4.6 4.6 4.6
Gross domestic product (billions of 2000 $) 2.5 3.6 3.1 2.9 2.1 2.1 2.4 2.6 2.6 2.4 2.2 2.1 2.2 2.2 2.2
Gross domestic product implicit price deflator (chain weighted 2000 base year) 2.1 2.9 3.2 3.2 2.6 2.0 2.3 2.4 2.4 2.4 2.4 2.4 2.4 2.4 2.4
Consumer price Iindex (CPI-W)19821984 base 2.3 2.7 3.4 3.2 2.4 2.8 2.8 2.8 2.8 2.8 2.8 2.8 2.8 2.8 2.8
CMS implicit medical price deflatora 3.7 4.1 3.5 3.4 3.2 3.4 3.3 3.4 3.5 3.5 3.6 3.7 3.8 3.9 3.9
U.S. populationb 0.9 1.0 1.0 1.0 0.7 0.8 0.8 0.8 0.8 0.8 0.8 0.8 0.8 0.8 0.8
        Population age less than 65 years 1.0 1.0 0.9 1.0 0.6 0.7 0.7 0.7 0.6 0.5 0.4 0.4 0.4 0.4 0.4
        Population age 65 years and older 1.0 1.1 1.3 1.0 1.4 1.8 1.8 1.6 2.1 3.0 3.2 3.0 3.0 3.0 3.1
Private health insuranceNHE 9.1 7.1 6.2 5.5 6.4 6.8 7.0 6.5 6.3 6.3 6.3 6.0 6.0 5.9 5.8
Private health insurancePHC 8.0 7.5 6.9 6.0 6.6 6.5 6.5 6.6 6.6 6.4 6.3 6.2 6.1 6.0 5.8
Notes: Numbers and percents may not add to totals because of rounding. The health spending projections were based on the 2006 version of the National Health Expenditures released in January 2008. CMS = Centers for Medicare and Medicaid Services. NHE = National Health Expenditures. PHC = Personal Health Care.
Third-party payments
Public
Year Total Out-of-pocket payments Total Private health insurance Other private funds Total Federala State and locala Medicareb Medicaidc
Historical estimates Amount in billions
2002 $1,603.4 $211.4 $1,392.0 $552.5 $118.4 $721.1 $508.6 $212.5 $265.1 $249.0
2003 1,732.4 224.9 1,507.6 602.8 127.4 777.3 550.7 226.6 281.5 271.6
2004 1,852.3 234.9 1,617.4 645.8 134.1 837.5 597.1 240.4 309.3 292.0
2005 1,973.3 247.1 1,726.2 685.6 143.9 896.8 639.1 257.7 338.0 313.5
2006 2,105.5 256.5 1,849.0 723.4 155.3 970.3 704.9 265.4 401.3 310.6
Projected
2007 2,245.6 269.3 1,976.3 769.4 168.1 1,038.8 753.1 285.6 427.3 338.2
2008 2,394.3 282.6 2,111.7 821.7 180.8 1,109.3 806.8 302.5 460.7 361.2
2009 2,555.1 297.6 2,257.5 878.8 192.9 1,185.8 864.3 321.5 495.0 387.9
2010 2,725.8 314.4 2,411.4 936.0 206.3 1,269.0 926.5 342.5 531.1 417.7
2011 2,905.1 332.0 2,573.1 995.4 220.3 1,357.4 992.2 365.2 568.5 450.5
2012 3,097.8 350.6 2,747.3 1,058.0 234.6 1,454.7 1,065.3 389.4 610.5 486.0
2013 3,305.0 370.3 2,934.7 1,124.3 250.1 1,560.3 1,144.7 415.6 656.4 524.6
2014 3,523.6 391.3 3,132.3 1,192.0 266.2 1,674.1 1,230.3 443.8 705.6 566.6
2015 3,757.0 413.9 3,343.2 1,263.4 282.9 1,796.9 1,322.6 474.3 758.8 612.4
2016 4,007.8 438.1 3,569.7 1,338.0 300.2 1,931.5 1,424.3 507.2 818.1 662.3
2017 4,277.1 464.3 3,812.8 1,415.3 318.3 2,079.2 1,536.2 543.0 884.0 717.3
Historical estimates Per capita amount
2002 $5,560 $733 $4,826 $1,916 $411 $2,500 $1,763 $737 d d
2003 5,952 773 5,179 2,071 438 2,670 1,892 779 d d
2004 6,301 799 5,502 2,197 456 2,849 2,031 818 d d
2005 6,649 833 5,816 2,310 485 3,022 2,153 868 d d
2006 7,026 856 6,170 2,414 518 3,238 2,352 886 d d
Projected
2007 7,439 892 6,547 2,549 557 3,441 2,495 946 d d
2008 7,868 929 6,939 2,700 594 3,645 2,651 994 d d
2009 8,329 970 7,359 2,865 629 3,866 2,818 1,048 d d
2010 8,816 1,017 7,799 3,027 667 4,104 2,996 1,108 d d
2011 9,322 1,065 8,256 3,194 707 4,355 3,184 1,172 d d
2012 9,862 1,116 8,746 3,368 747 4,631 3,391 1,240 d d
2013 10,439 1,170 9,270 3,551 790 4,928 3,616 1,313 d d
2014 11,043 1,226 9,817 3,736 834 5,247 3,856 1,391 d d
2015 11,684 1,287 10,397 3,929 880 5,588 4,113 1,475 d d
2016 12,369 1,352 11,017 4,129 926 5,961 4,396 1,565 d d
2017 13,101 1,422 11,679 4,335 975 6,369 4,705 1,663 d d
Historical estimates Percent distribution
2002 100.0 13.2 86.8 34.5 7.4 45.0 31.7 13.3 16.5 15.5
2003 100.0 13.0 87.0 34.8 7.4 44.9 31.8 13.1 16.2 15.7
2004 100.0 12.7 87.3 34.9 7.2 45.2 32.2 13.0 16.7 15.8
2005 100.0 12.5 87.5 34.7 7.3 45.4 32.4 13.1 17.1 15.9
2006 100.0 12.2 87.8 34.4 7.4 46.1 33.5 12.6 19.1 14.8
Projected
2007 100.0 12.0 88.0 34.3 7.5 46.3 33.5 12.7 19.0 15.1
2008 100.0 11.8 88.2 34.3 7.5 46.3 33.7 12.6 19.2 15.1
2009 100.0 11.6 88.4 34.4 7.6 46.4 33.8 12.6 19.4 15.2
2010 100.0 11.5 88.5 34.3 7.6 46.6 34.0 12.6 19.5 15.3
2011 100.0 11.4 88.6 34.3 7.6 46.7 34.2 12.6 19.6 15.5
2012 100.0 11.3 88.7 34.2 7.6 47.0 34.4 12.6 19.7 15.7
2013 100.0 11.2 88.8 34.0 7.6 47.2 34.6 12.6 19.9 15.9
2014 100.0 11.1 88.9 33.8 7.6 47.5 34.9 12.6 20.0 16.1
2015 100.0 11.0 89.0 33.6 7.5 47.8 35.2 12.6 20.2 16.3
2016 100.0 10.9 89.1 33.4 7.5 48.2 35.5 12.7 20.4 16.5
2017 100.0 10.9 89.1 33.1 7.4 48.6 35.9 12.7 20.7 16.8

There is heightened interest in developing treatments and technologies designed to reduce the health system's dependence on expensive, inpatient hospital care. After professional services ($660.2 billion), hospital care expenditures were the single-largest spending component of total health care expenses ($648.2), accounting for 31% of all national health care expenditures in 2006. (See Table 5.5.) The annual hospital cost growth rate was 7% in 2006 and was projected to remain at about that rate through 2017.

Physician and clinical services accounted for $447.6 billion of 2006 national health spending. (See Table 5.5.) Spending for nursing home care totaled $124.9 billion, and spending for home health care reached $52.7 billion. Nursing home expenses increased 3.5% in 2006 and were projected to rise by about 5% annually through 2017.

Third-party payments
Public
Year Total Out-of-pocket payments Total Private health insurance Other private funds Total Federala State and locala Medicareb Medicaidc
aIncludes Medicaid State Children's Health Insurance Program (SCHIP) Expansion and SCHIP.
bSubset of federal funds.
cSubset of federal and state and local funds. Includes Medicaid SCHIP Expansion.
dCalculation of per capita estimates is inappropriate.
Historical estimates Annual percent change from previous year shown
2002
2003 8.0 6.4 8.3 9.1 7.6 7.8 8.3 6.6 6.2 9.1
2004 6.9 4.5 7.3 7.1 5.2 7.7 8.4 6.1 9.9 7.5
2005 6.5 5.2 6.7 6.2 7.3 7.1 7.0 7.2 9.3 7.3
2006 6.7 3.8 7.1 5.5 7.9 8.2 10.3 3.0 18.7 0.9
Projected
2007 6.7 5.0 6.9 6.4 8.3 7.1 6.8 7.6 6.5 8.9
2008 6.6 4.9 6.9 6.8 7.5 6.8 7.1 5.9 7.8 6.8
2009 6.7 5.3 6.9 7.0 6.7 6.9 7.1 6.3 7.4 7.4
2010 6.7 5.7 6.8 6.5 6.9 7.0 7.2 6.5 7.3 7.7
2011 6.6 5.6 6.7 6.3 6.8 7.0 7.1 6.6 7.0 7.9
2012 6.6 5.6 6.8 6.3 6.5 7.2 7.4 6.6 7.4 7.9
2013 6.7 5.6 6.8 6.3 6.6 7.3 7.5 6.7 7.5 7.9
2014 6.6 5.7 6.7 6.0 6.4 7.3 7.5 6.8 7.5 8.0
2015 6.6 5.8 6.7 6.0 6.3 7.3 7.5 6.9 7.5 8.1
2016 6.7 5.9 6.8 5.9 6.1 7.5 7.7 6.9 7.8 8.2
2017 6.7 6.0 6.8 5.8 6.0 7.6 7.9 7.1 8.0 8.3
Notes: Per capita amounts based on July 1 Census resident based population estimates. Numbers and percents may not add to totals because of rounding. The health spending projections were based on the 2006 version of the National Health Expenditures (NHE) released in January 2008.

One of the fastest-growing components of health care is the market for prescription drugs. In 2006 Americans spent $216.7 billion on prescription medicationthis was an 8.5% increase from $199.7 billion in 2005. (See Table 5.5.) A large part of the increase was financed by private insurers, who paid $47.6 billion of the drug costs in 2006, slightly lower than the previous year's $48.8 billion. (See Table 5.7.) The aging population and the fact that prescription drugs are increasingly substituted for other types of health care have fueled growth in this sector of health services. For example, antidepressant drugs have demonstrated effectiveness in place of more expensive psychotherapy.

Prescription Drug Prices Rose in 2007

In Rx Watchdog Report Trends in Manufacturer Prices of Prescription Drugs Used by Medicare Beneficiaries 2002 to 2007 (2008, http://assets.aarp.org/rgcenter/health/2008_05_watchdog_q407.pdf), David Gross, Stephen W. Schondelmeyer, and Leigh Purvis find that pharmaceutical companies increased the prices they charge drug wholesalers for the top 220 brand-name drugs an average of 7.4% in 2007, more than two and half times the general inflation rate of 2.9%. All but four of the 220 drugs rose in price during 2007. Gross, Schondelmeyer, and Purvis note that manufacturers have increased prices of brand-name drugs used by Medicare beneficiaries since the implementation of the Medicare prescription drug benefit in 2006.

The Medicare drug benefit was intended to increase government spending for prescription drugs and provide prescription drug savings for older Americans and people with disabilities. The voluntary program allows Medicare beneficiaries to choose from dozens of plans offered by health insurers and health plans called pharmacy benefit managers.

Gross, Schondelmeyer, and Purvis observe that manufacturers' drug price increases produce higher pharmacy prices and higher out-of-pocket costs for Medicare beneficiaries who pay a percent of their drug costs as opposed to fixed copayment per prescription. The higher prices also result in higher costsfor drug plans, whichinturnmay serve toincreasethe plans' premiums or cause them to reduce benefits.

HEALTH CARE FOR OLDER ADULTS, PEOPLE WITH DISABILITIES, AND THE POOR

The United States is one of the few industrialized nations that does not have a national health care program. Government-funded health care exists, and it forms a

Projected
Type of expenditure 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
*Research and development expenditures of drug companies and other manufacturers and providers of medical equipment and supplies are excluded from research expenditures. These research expenditures are implicitly included in the expenditure class in which the product falls, in that they are covered by the payment received for that product.
National health expenditures $1,603.4 $1,732.4 $1,852.3 $1,973.3 $2,105.5 $2,245.6 $2,394.3 $2,555.1 $2,725.8 $2,905.1 $3,097.8 3304.97 $3,523.6 $3,757.0 $4,007.8 $4,277.1
        Health services and supplies 1,499.4 1,620.7 1,730.6 1,843.6 1,966.2 2,095.5 2,234.5 2,386.3 2,546.5 2,714.5 2,895.9 3,090.6 3,296.3 3,516.1 3,752.9 4,007.7
                Personal health care 1,340.8 1,445.9 1,547.7 1,653.7 1,762.0 1,877.6 1,999.1 2,130.6 2,273.1 2,425.0 2,587.5 2,761.5 2,946.5 3,144.1 3,356.5 3,585.6
                        Hospital care 488.6 525.4 564.4 605.5 648.2 696.7 747.1 800.0 855.3 914.8 977.9 1,044.2 1,114.1 1,187.8 1,264.6 1,345.7
                      Professional services 503.1 542.9 580.7 622.2 660.2 701.1 743.1 790.6 842.5 896.4 953.3 1,014.6 1,078.6 1,146.0 1,219.2 1,297.7
                                  Physician and clinical services 337.9 366.7 393.6 422.6 447.6 473.0 501.7 532.8 566.5 601.0 636.8 675.1 714.0 753.6 795.8 840.0
                                  Other professional services 45.6 49.0 52.4 56.2 58.9 61.7 65.1 68.5 72.4 76.3 80.5 84.9 89.5 94.3 99.5 105.0
                                  Dental services 73.3 76.9 81.5 86.6 91.5 96.9 102.4 108.2 114.4 120.7 127.4 134.5 142.0 150.3 159.6 169.6
                                  Other personal health care 46.3 50.3 53.2 56.8 62.2 69.6 73.9 81.1 89.2 98.4 108.6 120.2 133.2 147.8 164.4 183.1
                      Nursing home and home health 139.9 148.5 157.9 168.7 177.6 187.3 198.5 210.2 222.9 236.2 250.1 264.8 280.7 297.8 316.1 336.5
                                  Home health care 34.2 38.0 42.7 47.9 52.7 57.6 62.0 66.7 71.8 77.1 82.7 88.8 95.3 102.4 110.2 119.0
                                  Nursing home care 105.7 110.5 115.2 120.7 124.9 129.7 136.5 143.5 151.2 159.1 167.4 176.0 185.3 195.4 206.0 217.5
                      Retail outlet sales of medical products 209.1 229.0 244.7 257.3 276.0 292.5 310.4 329.8 352.4 377.6 406.1 437.9 473.2 512.5 556.6 605.7
                                  Prescription drugs 157.6 174.2 188.8 199.7 216.7 231.3 247.0 264.5 284.6 307.2 332.9 361.6 393.7 429.8 470.4 515.7
                                  Other medical products 51.5 54.9 55.9 57.6 59.3 61.2 63.4 65.3 67.8 70.4 73.3 76.3 79.5 82.7 86.2 90.0
                                            Durable medical equipment 20.7 22.4 22.8 23.2 23.7 24.5 25.4 26.0 27.0 28.0 29.2 30.5 31.9 33.3 34.9 36.6
                                            Other non-durable medical products 30.8 32.4 33.1 34.4 35.6 36.7 38.0 39.3 40.9 42.4 44.0 45.8 47.6 49.3 51.3 53.4
                Program administration and net cost of private health insurance 106.5 121.0 129.0 133.6 145.4 155.1 168.3 184.0 196.5 207.1 220.3 234.7 248.7 263.7 280.3 297.7
                Government public health activities 52.1 53.8 53.9 56.3 58.7 62.8 67.1 71.8 76.9 82.3 88.1 94.4 101.1 108.3 116.0 124.4
        Investment 104.0 111.8 121.7 129.7 139.4 150.1 159.8 168.8 179.3 190.7 201.9 214.3 227.3 240.9 254.9 269.4
                  Research* 32.5 35.5 38.8 40.6 41.8 42.9 44.0 45.8 48.1 50.8 53.9 57.3 60.9 64.7 68.6 72.7
                  Structures & equipment 71.5 76.3 83.0 89.1 97.6 107.2 115.8 122.9 131.2 139.9 148.0 157.0 166.4 176.3 186.3 196.7
National health expenditures 8.0 6.9 6.5 6.7 6.7 6.6 6.7 6.7 6.6 6.6 6.7 6.6 6.6 6.7 6.7
        Health services and supplies 8.1 6.8 6.5 6.6 6.6 6.6 6.8 6.7 6.6 6.7 6.7 6.7 6.7 6.7 6.8
                            Personal health care 7.8 7.0 6.8 6.6 6.6 6.5 6.6 6.7 6.7 6.7 6.7 6.7 6.7 6.8 6.8
                    Hospital care 7.5 7.4 7.3 7.0 7.5 7.2 7.1 6.9 7.0 6.9 6.8 6.7 6.6 6.5 6.4
                      Professional services 7.9 7.0 7.1 6.1 6.2 6.0 6.4 6.6 6.4 6.4 6.4 6.3 6.3 6.4 6.4
                                Physician and clinical services 8.5 7.3 7.4 5.9 5.7 6.1 6.2 6.3 6.1 6.0 6.0 5.8 5.6 5.6 5.6
                                Other professional services 7.5 7.0 7.1 4.9 4.8 5.5 5.2 5.7 5.4 5.4 5.5 5.4 5.4 5.5 5.6
                                Dental services 4.8 6.0 6.3 5.7 5.9 5.7 5.6 5.7 5.6 5.5 5.5 5.6 5.9 6.2 6.3
                                Other personal health care 8.7 5.7 6.8 9.5 11.8 6.3 9.6 10.0 10.2 10.4 10.6 10.8 11.0 11.2 11.4
                      Nursing home and home health 6.1 6.3 6.9 5.3 5.4 6.0 5.9 6.0 6.0 5.9 5.9 6.0 6.1 6.2 6.4
                                Home health care 11.1 12.3 12.3 9.9 9.2 7.8 7.6 7.5 7.4 7.3 7.3 7.3 7.4 7.6 8.0