Medicare Actuaries: National Health Spending Grew 2.7 Percent to $4.3 Trillion
The actuaries in the Office of the Actuary inside the federal Centers for Medicare and Medicaid Services (CMS) have released their annual report on total annual national healthcare spending, reporting that total U.S. healthcare spending rose to $4.3 trillion in 2021, or $12,914 per person. The growth rate compared to 2020 was only 2.7 percent because of the return to normal spending patterns following the abnormal year of 2020; expenditures had increased 36.8 percent in 2020 over 2019 because of COVID-19 funding.
The spending statistics were published in an article online on Wednesday afternoon, Dec. 14, in the form of an article in Health Affairs. They will also be published in print in the January 2023 issue of Health Affairs.
The article begins thus: “A new analysis from the Office of the Actuary at the Centers for Medicare and Medicaid Services (CMS), published online today by Health Affairs, estimates that in 2021 health care spending in the United States increased 2.7 percent to $4.3 trillion, or $12,914 per person. The growth rate is much lower than the 10.3 percent growth in 2020 because of the decline in federal government expenditures, after strong growth in 2020 due to the COVID-19 pandemic. Health care spending increased 2.7 percent in 2021, which is much slower than growth in the nominal gross domestic product (GDP), which increased 10.7 percent, the largest growth rate since 1984. In 2021 the share of the economy devoted to health care spending, as measured by the GDP, declined to 18.3 percent from 19.7 percent in 2020. On a per capita basis, national health spending grew 2.6 percent.”
Further, according to the Medicare actuaries, “Growth in total health care spending in 2021 reflected increases in the use of health care goods and services and insurance coverage that were accompanied by a decline in federal government health care spending. Federal COVID-19 funding continued in 2021, but at a much lower level than in 2020. Spending for other federal programs, which includes the Provider Relief Fund and the Paycheck Protection Program, decreased to $71.9 billion in 2021 from $193.1 billion in 2020 (a decline of 62.7 percent). Federal spending for public health activity, which included vaccine development and health facility preparedness funding, decreased to $78.8 billion in 2021, down from $135.8 billion in 2020 (a 41.9 percent decrease). The declines in both categories were the largest contributors to slower growth in overall health care expenditures in 2021. Total national health expenditures that exclude spending associated with federal public health and other federal programs increased by 7.6 percent in 2021 compared with 2.3 percent in 2020, as COVID-19 vaccinations became widely available and the use of medical goods and services increased,” the actuaries noted.
“The slower rate of health care spending in 2021 was driven by a decline in federal government expenditures for health care after a spike in 2020 that occurred largely in response to the COVID-19 pandemic,” Anne B. Martin, an economist in the CMS Office of the Actuary and first author of the Health Affairs article, said in a statement. “The trends in health care spending in 2021 are linked to the many unique impacts of the COVID-19 pandemic, including the substantially reduced federal COVID-19 supplemental and public health expenditures and an increase in the use of health care goods and services as people sought care at a higher rate than in 2020.”
The article went on to state that “The number of uninsured individuals declined for the second consecutive year, going from 31.2 million in 2020 to 28.5 million in 2021. Marketplace enrollment increased 13.4 percent, and Medicaid enrollment grew 11.2 percent—the largest growth since 2015. At the same time, Medicare and total private health insurance enrollment grew 1.7 percent and 0.3 percent, respectively. For private health insurance, growth in Marketplace enrollment was partially offset by a decline in employer-sponsored insurance enrollment.”
And the article summarized spending by different types of payers, and by category (hospital, physician, pharmacy).
Major payers’ spending in 2021:
• Private health insurance (5.8 percent growth)—reached $1.2 trillion in 2021 and accounted for 28 percent of total health expenditures. Private health insurance spending for medical goods and services grew 9.6 percent in 2021, driven by increased expenditures for hospital care, physician and clinical services, and dental services expenditures. A pent-up demand for elective surgeries and procedures forgone in 2020 increased overall use of medical goods and services in 2021. On a per enrollee basis, private health insurance spending increased 5.5 percent in 2021, following a 0.1 percent decline in 2020.
• Medicare spending (8.4 percent growth)—reached $900.8 billion in 2021, accounting for 21 percent of total national health care expenditures. Total Medicare spending increased at a faster rate in 2021—8.4 percent compared with 3.6 percent growth in 2020. Per enrollee Medicare expenditures increased 6.6 percent in 2021 compared with 1.5 percent growth in 2020. Medicare spending for personal health care increased 10.6 percent in 2021 compared with the 1.7 percent growth in 2020, driven by an acceleration of spending growth for hospital care and physician and clinical services. Fee-for-service Medicare spending accounted for 54 percent of overall Medicare spending in 2021 and increased 3.9 percent in 2021 after a decline of 4.1 percent in 2020. Medicare private health plan spending grew 14.1 percent in 2021—a continued strong rate of growth compared with a 15.6 percent increase in 2020.
• Medicaid expenditures (9.2 percent growth)—reached $734.0 billion in 2021, accounting for 17 percent of total national health spending. Medicaid spending increased 9.2 percent in 2021, a growth that was approximately the same as in 2020 (9.3 percent), but much faster than the average rate of 2.9 percent during 2017–19. Medicaid spending for goods and services increased 9.7 percent in 2021 after a growth rate of 6.2 percent in 2020, stemming from faster growth in expenditures for hospital care, physician and clinical services, and dental services. On a per enrollee basis, Medicaid spending growth declined 1.8 percent in 2021 compared with 4.3 percent growth in 2020. The strong increase in enrollment in 2021 was mainly attributable to the enrollment of qualifying children and adults who tend to have lower per enrollee expenditures than disabled and elderly enrollees.
• Out-of-pocket spending (10.4 percent growth)—reached $433.2 billion in 2021, accounting for 10 percent of total national health expenditures. Out-of-pocket spending increased by 10.4 percent in 2021—the fastest rate of growth since 1985—after a 2.6 percent decrease in 2020. This faster growth was driven mainly by an increase in use. Faster growth was most notable in dental services and durable medical equipment, which grew 18.0 percent and 31.6 percent, respectively.
Major goods and services’ spending in 2021:
• Hospital spending (4.4 percent growth)—reached $1.3 trillion in 2021, representing 31 percent of overall health care spending. Growth in expenditures for hospital care was 4.4 percent in 2021, lower than the 6.2 percent growth in 2020. The slower growth in 2021 reflected a decrease in spending for other federal programs, including COVID-19 relief funding, which fell to $19.4 billion in 2021 from $86.6 billion in 2020. Use of hospital services increased substantially in 2021 as COVID-19-related restrictions on elective procedures and less urgent care lifted.
• Physician and clinical services (5.6 percent growth)—spending reached $864.6 billion, or 20 percent of total health care expenditures in 2021. Spending growth decelerated to 5.6 percent in 2021, following a growth of 6.6 percent in 2020. Although this slower growth is likely due to expenditures associated with the Provider Relief Fund and Paycheck Protection Program declining in 2021, the level of spending for other federal programs remained higher than in 2019. Spending for independent billing laboratories, which includes expenditures associated with COVID-19 testing, experienced strong growth in 2020 and 2021.
• Retail prescription drugs (7.8 percent growth)—expenditures reached $378.0 billion in 2021 and represented 9 percent of overall health spending. The increase in spending growth for retail prescription drugs was primarily due to growth in prescription drug use resulting from a rebound in doctor’s visits and an increase in the number of new drugs prescribed in 2021.
