Continued Rise in Health Care Costs

Total Health Care Spending: Total U.S. health care expenditures were projected to increase to $4.66 trillion in 2023, up from $4.01 trillion in 2020 and $3.82 trillion in 2019, according to the U.S. Centers for Medicare and Medicaid Services (CMS). Growth in health care costs has been extraordinary. In 1990, national health expenditures were only $696 billion. By 2005, the amount had tripled to $1.98 trillion. Health care costs are so enormous that they are crowding out investment in other vital areas such as infrastructure, education, defense, transportation and scientific research.

Mid-term projections for health care cost growth far exceed those for overall economic growth. Health spending in the U.S., at an estimated 17.4% of Gross Domestic Product (GDP) in 2022 (compared to only 9% in 1980). Approximately 66.6 million Americans were enrolled in Medicare in 2023 (up from only 34 million in 1990), these are patients who have reached a stage in life where they require much higher levels of health care than younger people.

Spending by Employers: Employers have been struggling for years to reduce their health coverage costs. Strategies include a steady shift of costs to employees through co-payments and deductibles, wellness programs and the growing use of generic drugs, which cost much less than branded drugs.

In order to find the average cost to employers who provide coverage to their employees, surveys are conducted by several different organizations each year. Results of the studies vary widely depending on methodology. According to a Kaiser Family Foundation survey, during 2022 employees were paying, on average, $6,106, or 28% of the total premium, for their share of the cost of family coverage (in addition to the $16,347 paid on average by the employer, for a combined total cost of $22,463 for a typical family for only one year of coverage). Annual premiums for coverage of a single worker (without a family) rose 4% in 2022 over the previous year to $7,911, with the worker contributing an average of $1,763.

One way in which employers are attempting to control costs is to implement continuous monitoring and preventive care plans for chronic conditions such as diabetes and heart disease.

The U.S. continues to spend more on health care than any other developed nation, whether measured as total spending, spending per capita or spending as a percentage of GDP. Per capita health expenditures in the U.S. were estimated at $12,407 for 2022, compared to only $4,730 during 2000.

Many cash-strapped Americans have bypassed increasingly expensive private health care plans, choosing not to be insured at all. These individuals and families are also avoiding or putting off health care until absolutely necessary, slowing overall health care spending to some extent. Unfortunately, patients who are not covered by insurance are typically charged much higher rates for care, because insurance providers negotiate the rates that they will pay. For example, a hospital might charge a set price of $1,200 for a CT scan procedure when billing an individual not covered by an insurance contract but discount the cost to $400 for someone who is covered.

Costs are also rising significantly in cases where private medical practices are being taken over by hospitals. In these cases, Medicare pays more for a number of services performed in hospitals than for the same procedures if performed in doctors’ offices.

Insurers are working to lower costs by putting pressure on drug manufacturers. Cancer care is an area that is especially hard hit by costs. Some of the newer cancer drugs cost more than $400,000 per round of treatment.

A RAND Corporation study of hospital practices in mid-2020 found that U.S. hospitals are charging private insurance companies 2.5 times more than they charge to Medicare for the same care. In several U.S. states, private insurers paid three or more times what Medicare paid for inpatient stays of one night or more. In early 2021, a study of only one California hospital disclosed a disparity in charges for a caesarean section birth delivery of between $6,241 on the low end (for Medicaid recipients) and $60,584 on the high end (for women on commercial health insurance who did not have this hospital in their insurer’s network). Similar variations by type of coverage were found for other major operations, such as a range form $89,752 for a major, complex-patient heart procedure on Medicare to as much as $425,945 for in-network commercial insurance and $515,697 for out-of-network insured patients.

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