National Healthcare Spending Declines for First Time in 60 Years

National healthcare spending has declined for the first time in 60 years in the first quarter of 2022, with the country seeing a 1.7 percent year-over-year decrease, a research brief from Altarum found.

Between 1960 and 2020, healthcare spending growth has always been positive and greater than economywide inflation, according to the CMS National Health Expenditure Accounts. As a result, real or inflation-adjusted healthcare spending in the US has continually increased.

However, real healthcare spending growth was flat in 2021 and declined in quarter one of 2022. The 1.7 percent year-over-year decrease represents a seven percentage point reduction from the long-term average of a 5.3 percent increase.

The decline in healthcare price growth relative to inflation has significantly contributed to the decrease in real healthcare spending. The consumer price index (CPI) and producer price index (PPI) both increased rapidly starting in Q2 2021, whereas the Health Care Price Index (HCPI) maintained its long-term average growth.

In Q1 2022, PPI had increased 10.7 percent and CPI increased 8.0 percent, while HCPI had only grown 2.3 percent year-over-year.

According to the researchers, the slow growth in healthcare prices is likely a result of government policies and delays in contract negotiations. HCPI is projected to rise as 2022 prices reflect higher negotiated rates for care.

Healthcare spending as a share of personal consumption has also declined, the brief found.

Medical spending as a percent of personal consumption expenditures (PCE) peaked at 20.8 percent in 2019 and fell to 19.5 percent in Q1 2022. This figure likely shifted in 2020 before real healthcare spending dropped because healthcare providers received federal funds in response to the COVID-19 pandemic, which are included in real healthcare spending.

The Bureau of Labor Statistics (BLS) Consumer Expenditure Survey (CEX) found that health spending as a percent of overall household income peaked in 2017 at 7.7 percent for all households.

Consumer health spending declined for the next four years, reaching an average of 6.9 percent of household income in 2020. This represents a 0.8 percentage point decrease in healthcare costs as a proportion of household income.

Researchers predicted that the upcoming CEX data will show that consumer healthcare spending as a percent of total incomes continued to decline in 2021 due to rising incomes and slow-growing healthcare prices.

“Decreasing the long-term trajectory of healthcare spending in the US has been a longstanding goal of policymakers and business leaders, and these new data in some ways indicate a short period of success in this arena,” the brief stated. “However, despite indications of a slowing healthcare cost trend over the past 18 months, many of these impacts are expected to be short-lived.”

The recent data reflects federal health spending supports, including the Medicare Accelerate and Advance Payment programs and additional federal funds. When federal spending patterns return to normal, health expenditure growth rates may also return to long-term trends, the brief noted.

In addition, new provider contracts that take effect in 2022 may also kickstart healthcare price growth. Healthcare premiums are expected to rise in 2023 and inflation may no longer exceed healthcare price growth.

However, researchers predicted that the final CMS national health expenditure data for 2021 and 2022 will show a drop in the real long-term healthcare cost trend and alleviate the high COVID-19-related spending pressures in 2020.

Although the country saw continuously high healthcare spending for 60 years straight, a Health Affairs study found that, between 1996 and 2016, an increase in healthcare spending was associated with better health outcomes.