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National health spending reached $4.3 trillion in 2021

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Dive Brief:

  • National health spending grew almost 3% in 2021, reaching $4.3 trillion as big increases in healthcare use and insurance coverage were offset by lower government spending on COVID-19.
  • The year’s growth rate was smaller than the 10% notched in 2020. CMS actuaries chalked the deceleration up to lower federal health spending, which fell 3.5% in 2021 compared to a 37% increase in 2020 as funding to combat the pandemic skyrocketed.
  • Health spending grew at a much slower clip than the nation’s gross domestic product, which increased 11% in 2021 — the largest growth rate since 1984.

Dive Insight:

Spending on medical products and services continued to tick up in 2021, reaching $12,914 per person that year, even as the share of the economy devoted to healthcare expenditures shrunk slightly, according to the analysis from the CMS Office of the Actuary published in Health Affairs on Wednesday.

Healthcare spending skyrocketed in 2020 while the U.S. GDP decreased due to the pandemic.

But those trends reversed last year as the economy recovered and the government spent less on COVID-19 programs, leading healthcare spending to decline to 18.3% of the GDP in 2021, down from 19.7% in 2020.

The biggest contributor to slowing growth was declines in COVID-19 spending and other federal healthcare programs. That’s “obviously the dominant story here,” Health Affairs editor in chief Alan Weil said during a Wednesday media briefing on the report.

Government spending on programs — including the Provider Relief Fund and the Paycheck Protection Program — decreased 63% from $193.1 billion in 2020 to $71.9 billion in 2021.

Federal spending on public health activities, including vaccine development, decreased 42% from $135.8 billion in 2020 to $78.8 billion in 2021.

Meanwhile, national health spending excluding government expenditures actually increased by almost 8% in 2021. That’s compared to a little more than 2% growth in 2020.

Federal programs drove health spending growth in 2020 but not in 2021

Components of national health expenditure growth, 2019-2021

Payer spending on hospital care, physician and clinical services and dental services increased, partially due to pent-up demand for elective surgeries and procedures delayed during the pandemic, researchers said.

“There’s always been a question of when utilization will rebound, to what extent, to what degree, will it fully rebound,” Weil said, calling the trend a “critical part of the story.”

Private health insurance grew 5.8% in 2021 and remained responsible for the largest percentage of total health expenditures by payer type, at 28%.

Medicare spending grew 8.4%, while Medicaid growth remained generally stable year over year at 9.2%.

Out-of-pocket spending jumped 10.4%, the fastest rate of growth since 1985, according to the analysis, as consumers spent more on dental services and durable medical equipment.

The nation’s spending growth was slower for hospital care and physician and clinical services, but faster for retail prescription drugs, actuaries found.

Hospital spending grew 4.4% in 2021 to reach $1.3 trillion, but decelerated compared to 2020 as federal program spending declined, even as utilization increased. Hospitals continue to rake in the lion’s share of U.S. healthcare dollars overall.

Where the U.S. health dollar went last year

Percentage of total healthcare expenditures by major good and service, 2021

Spending on physician and clinical services grew 5.6%.

Meanwhile, retail prescription drug spending grew 7.8%. That acceleration was primarily due to a growth in prescription drug use amid rebounding doctor’s office visits and more new drugs prescribed in 2021, even as prices declined for the fourth year in a row, researchers said.

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