COVID-19 Federal Spending Drove National 2020 Healthcare Spending

National healthcare spending increased by nearly 10 percent in 2020 to $4.1 trillion, largely due to the spike in federal spending in response to the COVID-19 pandemic, according to a Health Affairs report.

When the pandemic hit in March 2020, it jumpstarted a series of changes in the healthcare industry. Health systems and clinics shut down, Americans delayed receiving healthcare services, health insurance coverage shifted due to unemployment, and the federal government increased its spending to support COVID-19-related actions.

The country’s national healthcare spending increased by 9.7 percent, which is the fastest rate since 2002. Meanwhile, gross domestic product fell by 2.2 percent, with health spending’s share of gross domestic product increasing from 17.6 percent in 2019 to 19.7 percent in 2020.

Spending by the federal government was the driving factor behind this change, CMS researchers found.

Federal expenditures grew by 36 percent in 2020 and accounted for more than a third of all national health spending, whereas in 2019 it accounted for 29 percent. On the other hand, expenditures from state and local governments, households, and businesses were all lower in 2020 compared to 2019 shares.

The majority of the federal funds were allocated to healthcare providers who lost revenue due to low utilization during the pandemic, state Medicaid programs, and public health initiatives related to the coronavirus pandemic.

The funds came from a series of federal regulations that prioritized healthcare providers and state and local governments, including the Coronavirus Preparedness and Response Supplemental Appropriations Act, the Families First Coronavirus Response Act, the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the Paycheck Protection Program and Health Care Enhancement Act, and the Coronavirus Response and Relief Supplement Appropriations Act of 2021.

Additionally, the Provider Relief Fund offered $122 billion in federal subsidies to providers in 2020. The Paycheck Protection Program also provided $53 billion in loans to help providers with payroll and other expenses.

Federal spending included funds for vaccine development, drug and vaccine stockpiling, and healthcare facility preparation. Certain federal healthcare professionals, including the Department of Veterans Affairs, received funding as well.

General public health expenditures—including federal, state, and local government funds for population-based healthcare services, disease prevention programs, and vaccination services—reached $223.7 billion in 2020.

Federal public health expenditures accounted for 57 percent of this spending, compared to the usual 15 percent or less, the report stated. Meanwhile, state and local public health expenditures saw similar increases in 2020 as they did the year before.

Perhaps as a result of high unemployment rates and a loss of employer-sponsored healthcare coverage, Medicaid enrollment increased by 3.7 million in 2020. The Families First Coronavirus Response Act provided states with a 6.2 percentage point increase in the federal medical assistance percentage, and payments to Medicaid programs accounted for 31 percent of all federal spending.

Aside from federal spending, which had the most prominent impact, private and public health insurance, out-of-pocket costs, and hospital care contributed to national healthcare spending in 2020.

Private health insurance expenditures accounted for 28 percent of total healthcare spending in 2020 but saw a 1.2 decline due to low healthcare utilization. Out-of-pocket healthcare spending also experienced a decline as utilization dropped.

Medicare spending was responsible for 20 percent of national healthcare expenditures, rising by only 3.5 percent, compared to 2019 when it saw a 6.9 percent increase.

Meanwhile, Medicaid spending accounted for 16 percent of total expenditures, reaching $671 billion and seeing its highest growth rate since 2014 of 9.2 percent.

Hospital expenditures accounted for 31 percent of national health spending at $1.3 trillion. There was a 6.4 percent increase in 2020, largely due to federal COVID-19 relief funds and increases in Medicaid spending for hospital care.

While these categories of healthcare spending helped contribute to the $4.1 trillion of national healthcare spending in 2020, federal expenditures for COVID-19-related initiatives were the driving factor behind the nearly 10 percent increase.