Re-examining National Health Expenditures

Ken Perez

By Ken Perez, vice president of healthcare policy and government affairs, Omnicell, Inc.

Discussions about the cost of healthcare in the United States often take the form of debates, pitting one sector against the other. Classic examples are health insurers (payers) versus hospitals and health systems (providers), and pharmaceutical manufacturers versus providers. Often at stake in these clashes are the relative sizes of the healthcare economic pie received by the different sectors.

Looking at healthcare through a societal lens helps one avoid participating in these debates and instead focus on macro issues. For years, how much the U.S. spends in total on healthcare—across all payers and for all healthcare—has been at the top of the macro issues list.

National health expenditures (NHE) are the universally accepted measure of that. On March 28, the Centers for Medicare and Medicaid Services (CMS) released the 2021-2030 National Health Expenditure report, which was prepared by the CMS Office of the Actuary.

How much did the U.S. in total spend on healthcare last year? In 2021, national health spending totaled $4.3 trillion, equal to 18.8% of the nation’s gross domestic product (GDP) and down from a record 19.7% of GDP in 2020 that reflected the significant spending incurred to respond to COVID-19. Because of the pandemic, NHE grew sharply (9.7%) from 2019 to 2020, and its growth slowed to 4.2% in 2021. Per capita health expenditures were $13,037 in 2021. To put that in perspective, last year, the U.S. spent almost $1,100 per month on healthcare for the average per person.

Comparisons with Other Countries

Since healthcare consumes almost a fifth of the nation’s GDP, one has to ask whether that is good or bad. One basis for answering that question is to compare U.S. healthcare spending with that of similarly advanced industrialized countries. Two measures are commonly used to perform that comparison: 1) healthcare spending as a percentage of GDP; and 2) per capital health expenditures.

Healthcare Spending as a Percentage of GDP

Excluding 2020, U.S. NHE as a percentage of GDP for 2016-2019 and 2021 has averaged 17.9%. According to Statista, the 10 industrialized countries most similar to the U.S.—including Germany, France, and the UK—spent 10-12% of GDP on healthcare during that period.

Per Capita Health Expenditures

The Kaiser Family Foundation estimates that U.S. per capita health expenditures were approximately $12,000 in 2020, about double the average for a group of 11 comparable industrialized countries (also including Germany, France, and the United Kingdom). That ratio has been consistent for several years.

Implications for U.S. Healthcare

The perennial question is “Why does the U.S. spend so much more on healthcare than other countries?” While there are numerous reasons—including higher prescription drug costs and administrative expenses, and greater use of medical imaging—the biggest and underlying driver is higher labor costs. A landmark 2003 study conducted by Gerard Anderson, Uwe Reinhardt, et al. concluded, “It’s the Prices, Stupid.” Their study found that the U.S. spends significantly more on healthcare compared to other OECD countries because of how much providers charge for services, and that is primarily a reflection of significantly higher wages paid to physicians, nurses, and other healthcare workers in the U.S. relative to other industrialized countries. And by causing literally hundreds of thousands of healthcare workers to quit, the COVID-19 pandemic has worsened the healthcare labor shortage, which has driven up wage rates. According to the American Hospital Association, labor expenses per patient rose by a staggering 19.1% from 2019 to 2021.

Moreover, demographic trends indicate worsening of the healthcare labor shortage in coming years. The 2021-2030 National Health Expenditure report projected the continued graying of America, with the population age 65 years and older growing an average of 2.5% per year through 2030 and the population younger than 65 years edging upward only 0.2% annually on average during the same period.

These projections portend the continuation of a worrisome trend: an aging workforce not being sufficiently replaced by younger generations, especially in the healthcare industry, which has seen the median age of nurses, nurse practitioners, and pharmacists, to name a few, rise well above the median age of the general population.

With wage hikes occurring in response to the labor shortage, controlling labor costs can only be achieved by reducing the amount of labor required to deliver healthcare. That could be accomplished through the application of intelligent infrastructure—including automation, robotics, and data intelligence—to take the labor component out of certain tasks or improve the efficiency of labor, which ultimately could reduce NHE.

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