Unbiased Analysis of Today's Healthcare Issues

Trends in Health Care Spending

Written By: Jason Shafrin - Jan• 30•06

A recent Health Affairs article by Cynthia Smith, Cathy Cowan, Stephen Heffler and Aaron Catlin details the trends in health care spending over the last 25 years. I have compiled their results into a handy graph.

Total Health Expenditures - 1970-2004

In addition the the general overall increase, there are other significant findings. Between 1970 and 2004, out-of-pocket payments decreased from 33.2% to 12.6% of total expenditures. This means that consumers are not going to be as price sensitive in regards to their election of medical treatment since they pay less then 15% of the total cost. It is no wonder that people are demanding more and more medical procedures.

Private Insurance has picked up much of the slack. In 1970 private insurers payed for 20.6% of all expenditures but currently they foot 35.1% of the bill.

Further, government payment for health care has increased from 37.7% of all U.S. expenditures in 1970 to 45.1% in 2004. The Medicare and Medicaid programs have made up between 60 and 70 percent of the total government expenditures in health care between 1980 and the present.

What is the the significance of these percentages? In general, end consumers are paying less and less for medical care out of their pocket. When third parties pay a larger percentage of the cost, we have the problem of moral hazard. President Bush is trying to make consumers more price sensitive by introducing Health Savings Accounts (HSA). Will this work? Look at my 26 January and 29 January posts to see some of what I think.

Cynthia Smith, Cathy Cowan, Stephen Heffler, Aaron Catlin;
“National Health Spending In 2004: Recent Slowdown Led By Prescription Drug Spending”
Health Affairs, January/February 2006; 25(1): 186-196.

You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.