US Healthcare Spending Tops $4.1T Amid COVID-19 Pandemic

The COVID-19 pandemic had a dramatic impact on US healthcare spending in 2020, according to a report recently released by the CMS Office of the Actuary.

The “2020 National Health Expenditures (NHE) Report,” published only ahead of print in Health Affairs, found that US healthcare spending increased by 9.7 percent last year to $4.1 trillion. That breaks down to about $12,530 per person.

As a result of the sharp increase, healthcare’s share of gross domestic product (GDP) experienced a historic increase from 17.6 percent in 2019 to 19.7 percent in 2020.

“The substantial growth in [healthcare] spending was the largest since 2002 and driven by the unprecedented government response to the global pandemic,” Micah Hartman, a statistician in the CMS Office of the Actuary and first author of the Health Affairs article, said in a press release. “Federal spending increased rapidly in 2020 as the government increased public health spending to combat the pandemic and provided significant assistance to [healthcare] providers.”

Federal spending on healthcare increased by 36.0 percent in 2020 largely in response to the pandemic, per the report. The spending included financial assistance given to providers through the Provider Relief Fund and the Paycheck Protection Program. Together, the two programs have allocated $175 billion of federal funds to healthcare providers struggling financially during the pandemic.

The federal government also increased public health spending for COVID-19 vaccine development, testing, and health facility preparedness. These efforts cost nearly $115 billion.

Additionally, CMS actuaries identified growth in federal Medicaid payments as enrollment in the program increased in 2020. This trend resulted in higher federal spending last year.

The rise in federal spending in response to the COVID-19 pandemic caused healthcare spending in 2020 to grow at the fastest rate in decades, according to CMS actuaries. However, taking out the increase in federal funding, national health expenditures did not grow very much.

The actuaries found that healthcare spending grew by just 1.9 percent when they did not account for the increase in pandemic-related federal funding. This is a significantly slower growth rate compared to the previous years.

Utilization of medical goods and services dropped dramatically during 2020 because of the pandemic, the actuaries explained in the report. However, decreased utilization was offset by federal support for healthcare providers.

Breaking spending down by type of good or service, CMS actuaries reported that hospital spending saw 6.4 percent growth, bringing total hospital spending for the year to $1.3 trillion, or nearly a third of overall healthcare spending.

Physician and clinical services spending saw 5.4 percent growth to reach $809.5 billion, or a fifth of overall healthcare spending. And spending on retail prescription drugs increased by 3.0 percent to $348.4 billion, or 8.0 percent of overall healthcare spending.

Notably, the report found that out-of-pocket spending on hospital care fell by 12.6 percent in 2020 after an increase of 8.3 percent the previous year. Meanwhile, hospital prices grew by 3.2 percent, faster than the 2.0 percent recorded the previous year.