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Health Care Costs Will Continue To Rise

Health care spending rates are on the rise and are likely to keep increasing, according to a new report by the nonpartisan Employee Benefit Research Institute (EBRI).

National health expenditures in the United States increased 5.6 percent between 1997 and 1998-up from 4.7 percent between 1996 and 1997-reaching a record high of $1.1 trillion in 1998. As a percentage of gross domestic product (GDP), these expenditures remained constant between 1993 and 1998 at roughly 13.5 percent, due to the growing U.S. economy. However, this rate was up significantly from 8.9 percent of GDP in 1980.

Data indicate that compared with almost 30 years ago, consumers account for a sharply smaller share of national health care costs, while the contributions by private insurance and the federal government have grown dramatically.

The July issue of EBRI Notes cites data from the Health Care Financing Administration (HCFA) indicating that the private sector accounted for 54.5 percent of national health spending, while the public sector accounted for 45.5 percent in 1998. However, the EBRI report also notes that these data may be significantly understating the real amount that the public sector actually spends on health care.

Some of the report's key findings:

  • Private-sector health spending in 1998 (the latest year for which data are available), amounted to $626.4 billion, an increase of $40.4 billion (or 6.9 percent) from the prior year. In 1998, direct consumer payments accounted for 31.8 percent of all private health spending, while private health insurance accounted for 60.0 percent, and other private expenditures were 8.3 percent. This represents a significant change from 1970, when 54.7 percent of all private-sector health expenditures came from direct consumer payments, 35.8 percent from private health insurance, and 9.7 from other private expenditures.
  • Public-sector health expenditures in 1998 totaled $522.7 billion, compared with $502.2 billion in the prior year (up about 4 percent). Most of that was accounted for by increased federal spending, which amounted to $376.9 billion in 1998, up 3.8 percent from 1997's total of $363.0 billion. In 1998, state and local governments spent $145.8 billion on health care programs.
  • Recent analysis suggests that these estimates may be understating public spending for health care. For example, it has been estimated that public-sector employers (federal, state, and local governments) contributed $63.2 billion toward the purchase of employment-based health insurance by their employees, but HCFA assigns this expenditure to the private sector. Furthermore, forgone tax revenue not collected because of the tax preference for health care spending is not counted toward national health spending by HCFA.
  • In 1998, expenditures for Medicare (the federal health insurance program for the elderly and disabled) were $216.6 billion, and for Medicaid (the federal-state program for the poor) were $170.6 billion; that year, Medicare accounted for 41.4 percent of all public spending on health care, while Medicaid accounted for 32.6 percent. These shares are up substantially from in 1970, when Medicare spending accounted for 27.8 percent of all public spending on health care and Medicaid accounted for 19.5 percent. However, the growth rate of Medicare spending has slowed dramatically, to the lowest recorded growth rate (2.5 percent in 1998, down from 6.0 percent in 1997 and 17.2 percent in 1980).
  • HCFA projects that national health spending will amount to $1.23 trillion in 1999 and $2.18 trillion by 2008. It projects that national health expenditures as a percentage of GDP will be 13.9 percent in 1999 (compared with 1998's level of 13.5 percent) and increase to 16.2 percent of GDP by 2008.

"Future national health expenditures are difficult to estimate precisely," said EBRI President Dallas Salisbury. "For instance, these projections assume that current laws will remain in effect. However, expenditures could be affected by future legislation to ensure the solvency of Medicare, as well as by technological innovation or changes in the U.S. economy."

EBRI is a private, nonprofit, nonpartisan public policy research organization based in Washington, DC. Founded in 1978, its mission is to contribute to, to encourage, and to enhance the development of sound employee benefit programs and sound public policy through objective research and education. EBRI does not lobby and does not take positions on legislative proposals. This report is based on information from ERBI. You may visit the ERBI web site at

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Editor: Susan K. Boyer, RN
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