U.S. Healthcare Spending: Overview & Types

Instructor: Daniel Murdock

Daniel has taught Public Health at the graduate level and has a Ph.D. in Behavioral Sciences & Health Education.

The United States spends trillions of dollars on healthcare each year. This lesson provides an overview of national spending on healthcare and discusses factors contributing to healthcare spending growth.

National Healthcare Spending

According to the World Health Organization (WHO), national spending on healthcare is higher in the United States than in any other country in the world. In 2016, the U.S. spent $3.4 trillion on healthcare. That's more than $10,000 per person. Healthcare spending accounts for a large share of the total U.S. economy. Health expenditures account for 18% of all U.S. gross domestic product (GDP), or the total value of all goods and services produced in a year.

Historical trends in national healthcare spending as a percentage of GDP
National trends in total healthcare cost as a percentage of GDP

U.S. healthcare costs, per capita and as a percentage of GDP, have been on the rise for over a decade. Healthcare costs have been rising far faster than inflation, or the general increase in prices for goods and services in the economy. This trend is expected to continue over the next several years. By 2025, healthcare spending is projected to account for a fifth of the U.S. economy.

In this lesson, we'll explore key factors that are contributing to the growth in U.S. healthcare spending, and we'll discuss strategies to control rising healthcare costs.

Concentrated Spending

Not all healthcare users are alike. Some people use a lot of healthcare, while others use very little or none at all. The bulk of U.S. healthcare spending is concentrated among a relatively small group of high cost users of medical care. The top 5% of the population with the greatest healthcare expenses account for more than half of all healthcare spending in the United States. Meanwhile, the bottom 50% of healthcare spenders account for just 3% of national healthcare spending.

Seniors are disproportionately represented among high cost users. This is because medical spending tends to increase with age. In 2013, 38% of personal healthcare spending was for Americans over age 65. A major reason why we are seeing continued growth in U.S. healthcare spending is that the U.S. population is getting older.

People living with multiple chronic conditions are also much more likely to be high cost users of medical care. The three most expensive diseases in 2013 were diabetes, heart disease, and neck and back pain, all of which are chronic conditions.

Types of Care

When it comes to healthcare spending, not all types of care are alike either. There is a wide range of health-related goods and services that the U.S. spends money on each year. These expenditures include things such as hospital care, dental services, prescription drugs, and nursing care.

More than half of all U.S. healthcare spending is on hospital care and physician and clinical services. However, a key driver of healthcare spending growth is high prescription drug costs. Although prescription drugs only account for 10% of all healthcare spending, spending in this area is growing at a faster rate than spending on any other type of care. This is due to a number of factors, including increased spending on new drugs, price growth for existing drugs, and fewer expensive brand-name drugs losing patent protection.

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