A Sustainable Path for Health Care Spending

In 2020, the U.S. spent $4.1 trillion on health care. That is 19.7 percent of the nation’s economic output or gross domestic product (GDP), up from 17.6 percent in 2019. 2020 was a unique year. Because of the COVID-19 pandemic, national spending on health care rose by 9.7 percent (the largest increase since 2002) while GDP fell by 2.2 percent (the largest decline since the 1930s). This explains the jump in health care spending as a percentage of GDP. 

Official estimates project that over the 2021 to 2030 period, national health spending will grow an average of 5.1 percent annually. Projections indicate GDP will grow, on average, at the same rate, so national health spending will account for 19.6 percent of GDP in 2030, about the same proportion as in 2020. 

High health care spending affects individuals, families, and employers. Individuals and families face higher health care premiums and cost-sharing, and employers and governments must pay more for health insurance and services. In response, employers are finding ways to limit their exposure to health care costs by cutting back on benefits, shifting to high-deductible health plans, or dropping coverage altogether. 

The primary causes of long-term spending growth are expensive medical technologies, prescription drugs, tests, and procedures. Also, provider-payment systems have incentives that fuel cost growth. Research reveals a large amount of waste and inefficiency in the U.S. health care system. This includes overuse and duplication of services, medical errors, preventable hospitalizations, high administrative costs, and lack of preventive care that could have delayed or completely prevented the need for treatment.