The United States has one of the highest costs of healthcare in the world. In 2020, U.S. healthcare spending reached $4.1 trillion, which averages to over $12,500 per person. By comparison, the average cost of healthcare per person in countries in the Organisation for Economic Co-operation and Development (OECD) is only about one-third as much. The COVID-19 pandemic exacerbated the trend in rising healthcare costs. In 2020, the year-over-year increase in national healthcare costs as a share of gross domestic product (GDP) was over 2 percentage points — the largest increase since 1960. However, healthcare spending had been increasing long before COVID-19 began. Relative to the size of the economy, healthcare costs have increased over the past few decades, from 5 percent of GDP in 1960 to 18 percent in 2019 (before COVID-19) and 20 percent in 2020.

WHY IS HEALTHCARE SPENDING INCREASING IN THE UNITED STATES?

Generally, healthcare spending can be thought of as a function of price (dollars charged for healthcare services) and utilization (the amount of services used). There are several underlying factors that can increase price and utilization, thereby boosting spending on healthcare. The most notable of those factors are an aging population and healthcare prices.

An Aging Population

Individuals age 65 and over are projected to account for 17 percent of the U.S. population in 2022. The U.S. Census Bureau projects that figure will exceed 20 percent by 2030. Since people age 65 and over, on average, spend more on healthcare than any other age group, growth in the number of older Americans is expected to increase total healthcare costs over time.

The Increasing Cost of Healthcare Services

Prices are another significant driver of healthcare spending in the United States; the cost of healthcare services typically grow faster than the cost of other goods and services in the economy. In the past 20 years, the Consumer Price Index (CPI) — the average change in prices paid by urban consumers for various goods and services — has grown at an average of 2.1 percent per year while the CPI for medical care has grown at an average rate of 3.5 percent per year.

High healthcare costs put pressure on an already strained fiscal situation and are one of the primary drivers of the long-term structural imbalance between spending and revenues that is built into the country’s budget. Containing high healthcare costs is important for our nation’s long-term fiscal and economic well-being

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