Slower Growth Attributed to Decline in Federal COVID-19 Spending
A decline in federal government spending led to more modest growth in health care expenditures last year, according to figures released today by the Office of the Actuary at the Centers for Medicare & Medicaid Services (CMS). The 2021 National Health Expenditures (NHE) Report found that U.S. health care spending grew 2.7% to reach $4.3 trillion in 2021, slower than the increase of 10.3% in 2020. The slower growth in 2021 was driven by a 3.5% decline in federal government expenditures for health care that followed strong growth in 2020 due to the COVID-19 pandemic response. This decline more than offset the impact of greater use of health care goods and services and increased insurance coverage in 2021.
The NHE is published annually contains data from 1960 through 2021 and is often referred to as the “official” estimate of U.S. health spending. The NHE measures total annual U.S. spending for the delivery of health care goods and services by type of good or service (hospital, physician, prescription drugs, etc.); type of payer (private health insurance, Medicare, Medicaid, etc.); and type of sponsor (businesses, households and federal/state governments). The NHE report also includes spending on government public health, investment in structures and equipment, and non-commercial research, as well as information on insurance enrollment and uninsured estimates.
Today’s report shows that the decline in federal government health care expenditures in 2021 was driven by a reduction in other federal program spending associated with COVID-19 supplemental funding, including the Provider Relief Fund and the Paycheck Protection Program (PPP), which assisted businesses with payroll, increased expenses, and lost revenue due to the pandemic, as well as a decline in federal public health activity. Spending for such other federal programs declined 62.7% from $193.1 billion in 2020 to $71.9 billion in 2021; however, this was still higher than the level in 2019 of $14.0 billion.
The U.S. gross domestic product (GDP) increased 10.7% in 2021 after contracting in 2020. The acceleration in GDP, combined with slower growth in health care expenditures, contributed to a drop in the share of the economy devoted to health, from 19.7% in 2020 to 18.3% in 2021, still higher than the 17.6% share in 2019. In 2021, the number of uninsured individuals declined for the second consecutive year as Medicaid and private health insurance enrollment increased.
Health Spending by Major Funds Sources was as follows:
- Private Health Insurance (28% share): Private health insurance spending increased by 5.8% in 2021 to $1.2 trillion. This increase was driven by strong growth in spending for medical goods and services, due to both increased utilization and increased enrollment in 2021. Private health insurance enrollment increased 0.3% in 2021 to reach 200.7 million.
- Medicare (21% share): Medicare spending increased 8.4% to reach $900.8 billion in 2021 following slower growth of 3.6% in 2020. The growth in 2021 reflected the combination of a 3.9% rise in spending for fee-for-service expenditures (accounting for 54% of total Medicare expenditures) and a 14.1% increase in Medicare private health plan spending. Medicare enrollment increased 1.7% in 2021 compared to growth of 2.1% in 2020.
- Medicaid (17% share): Medicaid spending increased 9.2% to $734.0 billion in 2021, similar to the 9.3% growth in 2020. Medicaid enrollment grew faster in 2021, increasing 11.2% following growth of 4.8% in 2020. This faster growth in enrollment was due largely to the continuous enrollment condition established under section 6008(b)(3) of the Families First Coronavirus Response Act (FFCRA). FFCRA established a temporary increase in the federal matching rate for Medicaid expenditures, provided states comply with certain conditions, including that they maintain enrollment of all individuals enrolled or determined eligible for Medicaid as of March 18, 2020, through the end of the month in which the COVID-19 public health emergency ends.
- Out-of-Pocket (10% share): Total out-of-pocket spending increased by 10.4% in 2021 following a decline of 2.6% in 2020. The increase in 2021 was driven by increased use of medical goods and services following a decrease in use in 2020 that resulted from the impact of the COVID-19 pandemic.
Health care spending in 2021 for the largest three services—hospital care, physician and clinical services, and retail prescription drugs—was as follows:
- Hospital Care (31% share): Spending for hospital care services increased 4.4% in 2021 to reach $1.3 trillion; however, this was a slower growth rate compared to the 6.2% growth experienced in 2020. The slower growth in 2021 reflected a substantial decrease in funding from federal programs, includingCOVID-19 relief. Partially offsetting the slowdown in 2021, spending growth was higher than in 2020 for the major payers of hospital care services—Medicare, Medicaid, private health insurance, and out-of-pocket spending.
- Physician and Clinical Services (20% share): Spending on physician and clinical services increased 5.6% to $864.6 billion in 2021, down slightly from 6.6% growth in 2020. As with hospital care, this slower growth was largely due to a decline in funding from federal programs that provided COVID-19 relief. Similar to the spending trends for hospital care, spending growth for physician and clinical services accelerated in 2021 for the major payers - Medicare, Medicaid, private health insurance, and out-of-pocket spending.
- Retail Prescription Drugs (9% share): Retail prescription drug spending increased 7.8% to $378.0 billion in 2021, a faster rate than in 2020 when spending increased by 3.7%. The acceleration in growth was due to an increase in the use of prescription drugs in 2021.
Sponsors of health care include estimates of spending by the businesses, households, other private funds and governments that are responsible for financing, or sponsoring, health care payments. Expenditures in these areas included:
- In 2021, the federal government and households accounted for the largest shares of national health spending (34% and 27%, respectively), followed by private businesses (17%), state and local governments (15%), and other private revenues (7%).
- Federal government spending declined 3.5% in 2021 compared to growth of 36.8 % in 2020. The decline in federal government health spending was driven by a reduction in federal COVID-19 funding, and to a lesser extent, a decrease in federal public health expenditures and slower growth in the federal portion of Medicaid payments.
- Health care spending by households experienced faster growth in 2021, increasing 6.1% after growth of 1.2% in 2020. This faster growth was due largely to household out-of-pocket expenditures, which accounted for 38% of household spending and increased 10.4% after a decline of 2.6% in 2020.
- Growth in state and local government health care spending rose 5.8% in 2021 following a decline of 1.9% in 2020. The growth in 2021 was driven primarily by a 4.6% increase in state and local Medicaid spending, which was 35% of state and local spending, after declining 7.0% in 2020.
- Spending on health care by private businesses increased 6.5% in 2021 after decreasing by 2.9% in 2020. The largest share of private business’ health spending was contributions to employer-sponsored private health insurance premiums (a 75% share), which grew 6.5% in 2021 after a 3.0% decline in 2020.
Previous versions of the NHE estimates have been revised to reflect the most recent and up-to-date source data that is available.
The 2021 National Health Expenditures data and supporting information will appear on the CMS website at: https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsHistorical
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