National Health Care Expenditures Remain “Relatively Stable” In 2018

Blog Post
Wednesday, December 11, 2019

For those wishing to take a deep dive into national health care spending, there is no better source than the annual report of the actuaries at the Centers for Medicare and Medicaid Services. Their report of 2018 spending was released last week in the journal Health Affairs.

National health care expenditures (NHE) grew by 4.6 percent in 2018, totaling $3.65 trillion. This growth rate was higher than the 4.2 percent growth in 2017 but the same as in 2016.

Measured as a share of the economy, NHE fell slightly to 17.7 percent from 17.9 percent in both 2017 and 2016. On a per-person basis, NHE increased by 4 percent to $11,172 in 2018.

The main difference in the 2018 growth rate was the reinstatement of the health insurance tax, originally enacted as part of the Affordable Care Act and suspended for one year in 2017. The growth rate for personal health care spending, which does not include administrative costs and taxes, remained the same as in 2017 and 2016 at 4.1 percent. This category amounts to 84 percent of total NHE.

The actuaries note that the stable number for personal health care spending was the result of “mixed trends,” with hospital spending, physician and clinical services all growing at a slightly slower rate and retail prescription drug spending growing at a faster rate than in 2017.

Government spending at the national and state levels amounted to $1.6 trillion in 2018, an increase of 4.5 percent. The share of NHE paid by government remained at 45 percent, a level that has held steady for the past several years. The federal government share was 28 percent and the state share was 17 percent, a split that has also remained constant for several years.

Medicare, which grew by 6.4 percent in 2018 to $750 billion, represented 21 percent of NHE. Traditional fee-for-service reimbursement comprised 64 percent of Medicare spending, down from 66 percent in 2017.  Medicare Part C, (Medicare Advantage), which offers a choice of private health care plans, grew to 36 percent of Medicare spending, continuing a trend over recent years. 

Medicaid spending, a joint federal and state program, rose by 3 percent to $597 billion. Of that total, $371 billion was spent by the federal government and $226 billion by the states, a split of 62 to 38 percent.  

Private health insurance spending increased by 5.8 percent, up from 4.9 percent in 2017. The total in this category amounted to $1.2 trillion, 34 percent of NHE.

Viewed as a whole, the actuaries found that the largest shares of NHE were for federal government spending and households at 28 percent each. Private businesses accounted for 20 percent and state government spending accounted for 17 percent. Other sources made up the remaining 7 percent.

The actuaries conclude, “Except for the slight uptick that was driven primarily by the one-time impact of the reinstated health insurance tax, growth in 2018 was relatively stable.”

That’s good news, but not an excuse to back away from continued efforts to lower the cost of delivering health care. Earlier this year, the actuaries published a report concluding that “National health expenditure growth is expected to average 5.5 percent annually from 2018-2027, reaching nearly $6.0 trillion by 2027.” 

With demographic factors pushing government health care spending higher, it will become increasingly important to find ways to improve efficiency without sacrificing, and hopefully enhancing, quality care.

For ideas in this regard, see A New Vision for Health Reform, a paper produced for The Concord Coalition’s project on fiscally responsible economic growth.