What is health care spending

what is health care spending

A dozen facts about the economics of the US health-care system

A Flexible Spending Account (also known as a flexible spending arrangement) is a special account you put money into that you use to pay for certain out-of-pocket health care costs. You dont pay taxes on this money. This means youll save an amount equal to . Source: Health, United States, , table 44 pdf icon [PDF MB] Percent of national health expenditures for hospital care: % () Percent of national health expenditures for nursing care facilities and continuing care retirement communities: % ().

Would you like to put money aside to pay for some of your health care costs? Then health spending accounts might be for you. You can use these accounts for qualified medical expenses, such as deductibles and copays. Health spending accounts come in three forms:. Each of these accounts works differently and comes with its own advantages. Find out more about how they work. Learn more about health savings accounts, which allow you to use pretax money for medical expenses now, save and invest money for medical expenses in the future, and empower you to shop around for the most cost-effective treatment options for your budget.

Learn more about health reimbursement arrangements, which are employer-funded accounts, and how they can help you pay for health care costs.

Flexible spending accounts can help you save money on taxes by setting aside pretax income for qualified medical, dental or vision expenses or dependent care. Learn more about these plans. Help Frequently What is your spirit animal native american Questions.

What's an HSA and how do I use it? What is HSA Bank? Health savings account calculators. What's an HRA and how do I use it? What's a flexible spending account and how does it work?

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Would you like to put money aside to pay for some of your health care costs? Then health spending accounts might be for you. You can use these accounts for qualified medical expenses, such as deductibles and copays. Health spending accounts come in three forms. Dec 23, Health spending per person in the U.S. was $10, in , which was 42% higher than Switzerland, the country with the next highest per capita health spending. On average, other wealthy countries spend about half as much per person on health than the U.S. Health consumption expenditures per capita, U.S. dollars, PPP adjusted,

The health-care sector is in many ways the most consequential part of the United States economy. Moreover, it matters because of its economic size and budgetary implications. A well-functioning health-care sector is therefore a prerequisite for a well-functioning economy. Unfortunately, the problems with U.

The United States spends more than other countries without obtaining better health outcomes Papanicolas, Woskie, and Jha This growth has slowed at times; health spending as a share of GDP was roughly flat in much of the s, and growth has also slowed to some extent in recent years. But even if expenditures as a share of GDP plateaued at their current level, they would still represent a massive expenditure of resources. Sixty years ago, health care was 5 percent of the U.

This growth represents a range of factors, from new health-care treatments and services to better coverage, higher utilization, and rising prices. Some of these changes are desirable: As a country gets richer, spending a higher share of income on health may be optimal Hall and Jones In addition, as the population ages, health deteriorates and health-care spending naturally rises.

Finally, if productivity advancements are more rapid in tradable goods like agriculture or manufacturing than in services like health care or education, the latter will tend to rise in relative price and as a share of GDP. But some of the increase in health-care costs is undesirable Cutler Rent-seeking, monopoly power, and other flaws in health-care markets sometimes result in unnecessary care or in elevated health-care prices.

In several of the facts that follow, we describe these factors and how they are shaping health care. Spending by private and public payers have both increased.

The United States has a health-care system that largely consists of private providers and private insurance, but as health care has become a larger part of the economy, a higher share of health-care funding has been provided by government figure B. As of , 34 percent of Americans received their health care via government insurance or direct public provision Berchick, Barnett, and Upton As shown in figure C, health care has doubled as a share of total government expenditures in the last three decades, from Policy changes like the introduction of the Medicare prescription drug benefit Part D in and a major expansion of Medicaid eligibility in played important roles.

At the same time, spending on discretionary programs like education and research and development have decreased as a share of GDP Congressional Budget Office If health expenditures continue to increase as a share of government spending, the increase will eventually necessitate either tax increases or reduced spending on other important government functions like public safety, infrastructure, research and development, and education.

Of course, health costs are also borne by the private sector. Despite widespread coverageas of , The upper end of the distribution of out-of-pocket costs dwarfs the liquid resources of many U. Unexpected health costs can generate bankruptcies and ongoing financial hardship Gross and Notowidigdo In this document, we provide 12 facts about the economics of U.

We highlight the surge in health-care expenditures and their current high level. We note the wide variation of expenditures across individualssomething that necessitates insurance. We document that the United States pays higher prices than most countries and that these prices vary widely across and within places.

We show that a lack of competition and high administrative costs are especially important contributors to high expenditures, indicating the need for reforms to reduce costs in the United States. To keep the focus on these issues, we do not discuss questions of coverage or of how coverage is provided publicly or via the market , but instead address the questions of why expenditures, costs, and prices are so high.

Removing excess costs from the health-care system is both an economic imperative and a complement to policy efforts to improve health-care access and outcomes. In the following facts we provide context for understanding the landscape of policy options for reducing costs in the health-care system. Spending on U. That growth has slowed at times, as in the mid- to late s and early s, but since it amounts to annualized growth in real per capita spending of 3.

From to , growth has been slower 2. A small part of the reason for this growth is the aging of the U. But this aging-related increase is only a small portion of the overall rise in spending: if the pattern of spending by age had remained constant at levels, the aging that took place from to would have led to a 34 percent rise in per capita spendingfar below the percent total increase over that same period.

Some of the increase simply reflects the growing spending that takes place as per capita income grows, and some comes from innovations that bring new health-care services and products.

But understanding why health care has had little productivity growth relative to the rest of the economy is important Sheiner and Malinovskaya As we explore in subsequent facts, problems with health-care markets have contributed to rapidly rising costs in recent decades. The United States spends much more on health care as a share of the economy Public spending by the United States 8.

However, public health insurance in the United States covers only 34 percent of the population, much less than the universal coverage in countries like Canada and the United Kingdom Berchick, Barnett, and Upton ; OECD b , indicating that it costs far more to provide coverage in the U. Figure 2 distinguishes spending on the basis of the ultimate payer, such that government payments to private providers are counted as public spending. Almost all U.

This is in contrast to those countries that also rely largely on private providers but have the government as the payer e. Note that the countries shown in figure 2 are high-income, advanced nations with near-universal health coverage, meaning that the gap in spending is not primarily explained by differences in coverage rates or income levels, but rather by differences in health-care institutions and policy.

What do Americans get for their additional health-care spending? In the United States, life expectancy at birth is the lowest of the countries in figure 2; maternal and infant mortality are the highest Papanicolas, Woskie, and Jha But what does the United States purchase with all this spending? Roughly a third of all health-care spending goes to hospital care figure 3 , making clear that the functioning of the U. Professional services make up roughly a quarter of spending.

Professional services are those provided by physicians and nonphysicians outside of a hospital setting, including dental services. The combination of long-term care, nursing care facilities, and home health care account for 13 percent of total health expenditures.

Prescription drugs are next at 9 percent, and net health insurance costs i. Insurance covers these different expenditures to varying degrees. However, for individuals and especially for the system as a whole , the expense of professional services is much larger.

Much health spending consists of labor costs, rather than capital investment. Lowering these labor costs requires some combination of increased labor supply, e. Health-care spending in any given year is distributed very unequally.

The half of the population using the least health care accounts for only 3 percent of total not just out-of-pocket expenditures excluding long-term care and some other components of spending ,[12] while the top 1 percent accounts for 22 percent figure 4.

One reason for this is that health misfortunes can strike at random, causing one-year expenditures to spike. In any given year the distribution can be very unequal, but only some of those with the highest spending will continue to have high spending in subsequent years Cohen and Yu The bottom half of health-care users are disproportionately young and consequently less likely to need expensive health care but apt to need it later in life.

Many people will incur high end-of-life expendituressuch costs accounted for 13 percent of personal health-care costs in Aldridge and Kelley but in any given year most people do not incur these costs. Also, at 13 percent, end-of-life care is important but not a dominant part of U. When individuals incur high costs, insurance is usually necessary to prevent extreme financial hardship. At the same time, the existence of insurance means that patients bear less financial responsibility for the cost of their care and have less incentive to control costs.

In other casessuch as emergenciespatients are often unable to compare costs or weigh prices. Both of these features mean that normal downward pressures on prices may not operate in the standard way in a health-care market. We use it in figure 5 to explore how the level and variation in health-care expenditures total, rather than out-of-pocket differ across people of varying health conditions.

People enjoying good health are, unsurprisingly, not a major driver of health-care expenditures. More striking is the dramatically higher range of expenditure levels for those in poor health. The group of people who report poor health as well as low health-care expenditures may have health problems that are not resolvable through expensive medical services, but they may also be medically underserved, whether because of a lack of insurance or other reasons Cunningham Regardless, health status alone may not always be a good guide to expected expenditures in a given year.

Some places in the United States have considerably higher health-care spending than others. This is not primarily a matter of elderly people being disproportionately represented in certain areas. Figure 6 shows spending per privately insured beneficiary after adjusting for differences across places in age and sex Cooper et al. The upper Midwest, much of the east coast, and northern California are all notable as places with especially high spending. In a comparison of so-called hospital referral regions i.

Roughly half of the overall variation is associated with differences in prices across regions, with the other half due to differences in the quantity of health care consumed.

Surprisingly, a significant amount of the national variation in prices occurs within hospitals Cooper et al. Medicare spending is somewhat different: prices are set administratively rather than through decentralized negotiations between payers and providers. Most of the geographic variation in Medicare spending is accounted for by differences in health-care utilization across placesespecially in post-acute carerather than by prices Cooper et al.

Further, about half of the variation in utilization is driven by demand-side factors like health and preferences, but differences in supply across places are also important Finkelstein, Gentzkow, and Williams Is this spending variation evidence of a problem that policy should address?

The answer and the policy response, if one is called for depends on whether spending is especially high in some places because of insufficient competition and related market failures Cooper et al. In a well-functioning competitive market, prices for the same service will not vary widely within a given place: consumers will avoid a business that charges much higher prices than its competitors. However, many health-care markets dramatically violate this expectation. Figure 7 focuses on health-care price variation within selected metro areas, showing that some metropolitan statistical areas feature much more price variation than others.

For a C-section delivery, prices vary widely both across and within markets: the 10th to 90th percentile range is 9. Some variation in prices is due to differences in quality and amenities: one medical practice might take more time with patients, have nicer facilities, or employ more experienced medical teams, allowing it to charge correspondingly higher prices.

But much of the variation is likely related to market imperfections that limit the ability and incentive for patients to shop for the lowest price Chernew, Dafny, and Pany ; Tu and Lauer ; Mehrotra et al. A Hamilton Project proposal by Michael Chernew, Leemore Dafny, and Maximilian Pany would address this type of health-care price dispersion with regulatory interventions directed at the most egregious price growth.

The United States has dramatically higher health-care prices than other advanced economies. This is the case for surgical procedures, diagnostic tests, prescription drugs, and almost any other type of health-care service.

Relatively high U.

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