SNAPSHOT
Health Care Costs 101
2005
Health Care Costs 101
Introduction
CONTENTS
For the first time in seven years, growth in health spending is slowing down. Nevertheless,
Spending Levels. . . . . . . . . . . 2
health care spending continues to outpace inflation and wage growth, which is likely to
Spending Categories . . . . . . . 5
keep the burden of rising health care costs in the spotlight. Recent examples include the
Payment Sources. . . . . . . . . . 7
Introduction . . . . . . . . . . . . . . 1
central role insurance coverage played in recent grocer worker labor negotiations, the
controversies over drug re-importation, and the debate over the escalating cost estimates
Growth Trends . . . . . . . . . . . 11
for the new Medicare Modernization Act.
Premiums and
Contributions . . . . . . . . . . . . 17
This annual presentation of Health Care Costs 101 provides general background on U.S.
Appendix. . . . . . . . . . . . . . . . 22
health spending, with detail for California where available. Just how much money is being
spent on health care and how does this compare to inflation? Where are the funds coming
Resources. . . . . . . . . . . . . . . 23
from and what are they being spent on? Which categories of spending are increasing the
fastest? Has growth in prescription drug spending continued to slow? With the increase in
copays and deductibles, are consumers now paying a bigger share of the bill? The guide
addresses these questions and more.
A re-issued companion analysis for California examines California vs. U.S. per capita
CONTACT US
spending and documents California’s historically slower growth rates for hospital,
California HealthCare
Foundation
476 Ninth Street
Oakland, CA 94607
t: 5 1 0 . 2 3 8 . 1 0 4 0
f: 5 1 0 . 2 3 8 . 1 3 8 8
www.chcf.org
prescription drugs, and physician spending in the period up to 1998. Updated data
will be published when available.
©2005 C ALIFORNIA H EALTH C ARE F OUNDATION
1
Health Care Costs 101
National Health Spending
SPENDING LEVELS
in Billions
$1,937
$1,805
Health spending reached
$1,679
$1.7 trillion in
$1,559
$1,426
2003 — about
$1,310
4.3 times the
$990
amount spent
on national
$696
defense.
$246
$27
1960
$73
1970
1980
1990
1995
2000
2001
2002
2003
2004P 2005P
Note: Selected rather than continuous years of data are shown prior to 2000. Years 2004 forward are CMS projections.
Source: Centers for Medicare and Medicaid Services (CMS), Office of the Actuary.
©2005 C ALIFORNIA H EALTH C ARE F OUNDATION
2
Health Care Costs 101
National Health Spending as a
Share of Gross Domestic Product
SPENDING LEVELS
Health care’s
18.7%
share of the
economy is
14.9%
15.3%
15.4% 15.6%
14.1%
13.3% 13.3%
13.2%
13.3%
once more
increasing,
12.0%
following a flat
period when
8.8%
historically
7.0%
low increases
in health care
costs coincided
1970
1980
1990
1993
1996
1998
2000
2001
2002
2003 2004P 2005P 2014P
with stable
economic
Note: Selected rather than continuous years of data are shown prior to 2000. Data for 2004 forward are projections.
Source: Centers for Medicare and Medicaid Services (CMS), Office of the Actuary.
©2005 C ALIFORNIA H EALTH C ARE F OUNDATION
growth.
3
Health Care Costs 101
National Health Spending
per Person
SPENDING LEVELS
$6,423
The amount
spent per
$5,671
person from
$4,914
all sources
$4,302
increased
$3,938
$3,650
69 percent
$3,354
between 1993
and 2003.
1993
1995
1997
1999
2001
2003
2005P
Note: Selected rather than continuous years of data are shown. 2005 is a projection.
Source: Centers for Medicare and Medicaid Services (CMS), Office of the Actuary.
©2005 C ALIFORNIA H EALTH C ARE F OUNDATION
4
Health Care Costs 101
Spending Distribution
SPENDING CATEGORIES
by Category, 2003
Hospital and
Total Spending
$1.7 trillion
physician
Administration*
services take
(7.1%)
Hospital Care
(30.7%)
Nursing Home/
Home Health Care
(9.0%)
Other*
(10.2%)
the largest
share of the
health care
dollar.
Dental/Other
Professional*
(10.3%)
Physician and
Clinical Services
Prescription Drugs
Prescription
drugs account
for 11 percent.
(10.7%)
(22.0%)
*See Appendix for breakdown of combined categories.
Source: Centers for Medicare and Medicaid Services (CMS), Office of the Actuary.
©2005 C ALIFORNIA H EALTH C ARE F OUNDATION
5
Health Care Costs 101
Spending Summary
Spending Levels (billions)
Category
NATIONAL HEALTH
EXPENDITURES (NHE)
2003
SPENDING CATEGORIES
Spending Distribution
Growth Over 2002
2002
1983
2003
2002
1983
Billions
Rate
$1,679 $1,559
$354
100%
100%
100%
$120
7.7%
In the last
20 years, the
Hospital Care
516
484
146
30.7%
31.1%
41.4%
32
6.5%
share spent on
Physician and
Clinical Services
370
341
68
22.0%
21.9%
19.2%
29
8.5%
hospital care
Prescription Drugs
179
162
17
10.7%
10.4%
4.9%
17
10.7%
Dental/Other Professional
172
162
28
10.3%
10.4%
8.1%
10
6.2%
the share spent
Other
171
161
45
10.2%
10.3%
12.8%
10
6.3%
on prescription
Nursing Home/
Home Health Care
151
143
30
9.0%
9.2%
8.4%
8
5.4%
drugs has
Administration
120
106
19
7.1%
6.8%
5.3%
14
13.2%
has shrunk;
more than
doubled.
Notes: “Dental/Other Professional” includes other professional, dental, and other personal health care (see Appendix).
“Administration” refers to government program administration (spending for the cost of running various government health
care programs) and net cost of private health insurance (the difference between premiums earned by insurers and the claims
or losses incurred for which insurers become liable).
“Other” includes durable medical equipment, other non-durables, government public health activities, and research and
construction (see Appendix).
Source: Centers for Medicare and Medicaid Services (CMS), Office of the Actuary.
©2005 C ALIFORNIA H EALTH C ARE F OUNDATION
6
Health Care Costs 101
Historic Payment Sources
PAYMENT SOURCES
Over time,
100%
14%
80%
13%
State and
Local
of federal
11%
32%
75%
Federal
60%
40%
the share
spending has
increased, most
54%
Medicare and Medicaid
enacted in 1965.
Private
dramatically
following the
creation of
20%
Medicare and
Medicaid.
0%
1960
1967
1973
1979
1985
1991
1997
2003
Notes: Chart reflects national health expenditures (NHE) by source of funds. Some figures may not add to 100% due to rounding.
Source: Centers for Medicare and Medicaid Services (CMS), Office of the Actuary.
©2005 C ALIFORNIA H EALTH C ARE F OUNDATION
7
Health Care Costs 101
Spending Distribution
PAYMENT SOURCES
by Payment Source, 2003
Other State
Public funds
(6.7%)
Private Health
Insurance
State Medicaid
State
(6.6%)
(35.8%)
13%
just under half
of the health
Federal
Medicaid
care dollar.
(9.7%)
Other
Federal
account for
Federal
Private
32%
54%
(5.7%)
Federal
Medicare
(16.9%)
Other Private
(4.9%)
Out-of-Pocket
(13.7%)
Notes: “Other Federal” and “Other State” include Department of Defense and Veterans Administration spending. “Other Private”
includes philanthropy and non-patient revenues. “Out-of-Pocket” includes direct spending by consumers for all health care goods and
services, such as coinsurance, deductibles and any amounts not covered by insurance. Premiums are included under “Private Health
Insurance.” Some figures may not add to 100% due to rounding.
Source: Centers for Medicare and Medicaid Services (CMS), Office of the Actuary.
©2005 C ALIFORNIA H EALTH C ARE F OUNDATION
8
Health Care Costs 101
Distribution of Spending
PAYMENT SOURCES
Public vs. Private for HSS, 2003
The public
24%
Hospital Care
42%
17%
12%
Dental/
Other Professional*
Nursing Home/
Home Health Care
Prescription Drugs
Administration*
Other*
more of its
28%
Physician and
Clinical Services
9%
sector spends
dollar on
Private
Public
hospital and
institutional
7%
13%
care than do
15%
private payers.
6%
9%
5%
5%
9%
*See Appendix for breakdown of combined categories.
Note: HSS (Health Services and Supplies) includes all national health expenditures (NHE) except research and construction.
Source: Centers for Medicare and Medicaid Services (CMS), Office of the Actuary.
©2005 C ALIFORNIA H EALTH C ARE F OUNDATION
9
Health Care Costs 101
Distribution of Spending
PAYMENT SOURCES
Out-of-Pocket vs. Private Insurance for HSS, 2003
Prescription
7%
Hospital Care
30%
31%
account for the
9%
greatest share
16%
Nursing Home/
Home Health Care
3%
of out-of-pocket
23%
Prescription Drugs
Other*
professional
20%
Dental/
Other Professional*
Administration*
dental/other
16%
Physician and
Clinical Services
drugs and
spending.
14%
Out-of-Pocket
0%
14%
Private Insurance
17%
1%
*See Appendix for breakdown of combined categories.
Note: HSS (Health Services and Supplies) includes all national health expenditures (NHE) except research and construction.
Source: Centers for Medicare and Medicaid Services (CMS), Office of the Actuary.
©2005 C ALIFORNIA H EALTH C ARE F OUNDATION
10
Health Care Costs 101
Average Annual Growth Rate in
National Health Expenditures
GROWTH TRENDS
The year 2003
marked
12.9%
the first
11.0%
10.6%
8.9%
8.5%
7.7%
7.2%
5.6%
1970
1980
1990
1993
1995
deceleration
9.3%
in spending
in seven years.
5.7%
5.1%
1997
1999
2000
2001
2002
2003
Note: Selected rather than continuous years of data are shown. Percentage increases are the average annual increase over
the prior period shown. The 1970 figure represents the average annual increase since 1960.
Source: Centers for Medicare and Medicaid Services (CMS), Office of the Actuary.
©2005 C ALIFORNIA H EALTH C ARE F OUNDATION
11
Health Care Costs 101
Annual Growth Rates
GROWTH TRENDS
NHE vs. CPI
Health
18%
spending has
16%
been increasing
14%
at a faster pace
12%
than inflation.
10%
8%
NHE
6%
4%
CPI
2%
0%
1970
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
Note: Health spending refers to national health expenditures (NHE). CPI is the consumer price index.
Source: Centers for Medicare and Medicaid Services (CMS), Office of the Actuary; Bureau of Labor Statistics
(CPI-U, U.S. city average, annual figures).
©2005 C ALIFORNIA H EALTH C ARE F OUNDATION
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Health Care Costs 101
Cumulative Impact of Growth Rates
16
NHE per Capita
14
Health care spending
per capita in 2003 was
16.3 times 1970 levels.
GROWTH TRENDS
The impact of
consistently
higher growth
12
rates in health
10
care spending
8
is seen in the
6
comparison to
Consumer Price Index
4
Consumer prices in 2003,
as measured by CPI, were
4.7 times 1970 levels.
2
1970
1970 levels.
1980
1985
1990
1995
2000
2001
2002
2003
Note: 2003 CPI is actual; 2003 NHE is projected.
Source: Centers for Medicare and Medicaid Services (CMS), Office of the Actuary; Bureau of Labor Statistics
(CPI-U, U.S. city average, annual figures).
©2005 C ALIFORNIA H EALTH C ARE F OUNDATION
13
Health Care Costs 101
Annual Growth Rates
GROWTH TRENDS
by Health Spending Categories
Growth in
25%
prescription
drug spending
20%
continues to
decelerate,
15%
2003 Growth Rates
Prescription
Drugs
10%
10.7%
remains higher
Physician and
8.5%
Clinical Services
5%
Hospital Care
6.5%
CPI
2.3%
0%
1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003
although it
than all other
major categories except
administration
(not shown at
Source: Centers for Medicare and Medicaid Services (CMS), Office of the Actuary.
©2005 C ALIFORNIA H EALTH C ARE F OUNDATION
13.2 percent).
14
Health Care Costs 101
Share of Health Care Spending
vs. Share of Increase, 2003
GROWTH TRENDS
Drugs,
31%
Hospital Care
26%
22%
24%
Physician and
Clinical Services
Nursing Home/
Home Health Care
Administration*
Other*
services, and
administration
11%
Prescription Drugs
Dental/
Other Professional*
physician
contribute dis-
14%
proportionately
10%
8%
Share of Spending
9%
6%
Share of Increase
to the overall
increase in
health
7%
12%
10%
spending.
8%
*See the Appendix for a breakdown of combined categories.
Note: Health care spending categories total to national health expenditures (NHE).
Source: Centers for Medicare and Medicaid Services (CMS), Office of the Actuary.
©2005 C ALIFORNIA H EALTH C ARE F OUNDATION
15
Health Care Costs 101
Prescription Drugs
GROWTH TRENDS
by Sources of Payment
As insurance
80%
coverage for
70%
drugs has
60%
become more
50%
widespread,
Private
Insurance (46%)
40%
Out-of-Pocket (30%)
30%
Public (24%)
there has been
a major shift
in how
20%
prescription
10%
drugs are
0%
1980
1985
1990
1995
2000
2003
paid for.
Source: Centers for Medicare and Medicaid Services (CMS), Office of the Actuary.
©2005 C ALIFORNIA H EALTH C ARE F OUNDATION
16
Health Care Costs 101
Annual Growth in Private Health
Insurance Premiums
PREMIUMS AND
CONTRIBUTIONS
Premiums in
18.0%
U.S.
CA
California
15.8%
14.0%
and the U.S.
13.9%
13.4%
12.9%
11.2% 11.4%
10.9%
grow at
10.0%
8.5%
continue to
double digit
8.2%
6.7%
rates, but less
5.3%
quickly than
in the past.
0.8%
1989
1990
1993
1996
1999
2000
2001
2002
2003
2004
Notes: Data on premium increases reflect the cost of employer-based health insurance coverage for a family of four as reported by
employers. Percent increase represents the growth over the immediate prior year. Selected rather than continuous years of data are
shown prior to 1999.
Sources: KFF/HRET Survey of Employer-Sponsored Health Benefits, 2004. CHCF/HRET California Employer Health Benefits Survey,
2004. California survey not conducted prior to 2000.
©2005 C ALIFORNIA H EALTH C ARE F OUNDATION
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Health Care Costs 101
Monthly Insurance Premiums
PREMIUMS AND
CONTRIBUTIONS
Single Enrollee in Group Health Plan, 2004
Although
$308
U.S.
CA
All Plans
$307
premiums for
HMOs are
lower in
Health Maintenance
Organization
(HMO)
Preferred Provider
Organization
(PPO)
$288
California than
$261
the nation,
premiums for
$317
$374
PPOs are
considerably
Point-of-Service
(POS)
$302
higher.
$300
Source: CHCF/HRET California Employer Health Benefits Survey, 2004.
©2005 C ALIFORNIA H EALTH C ARE F OUNDATION
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Health Care Costs 101
Monthly Insurance Premiums
PREMIUMS AND
CONTRIBUTIONS
Family Enrollee in Group Health Plan, 2004
Among
U.S.
$829
CA
All Plans
$834
employer-based
insurance
offerings, PPOs
HMO
$792
have the most
$721
PPO
expensive
insurance
$851
$981
premiums,
both in
POS
$818
$874
California and
nationally.
Source: CHCF/HRET California Employer Health Benefits Survey, 2004.
©2005 C ALIFORNIA H EALTH C ARE F OUNDATION
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Health Care Costs 101
Employee Share of Premium
PREMIUMS AND
CONTRIBUTIONS
California vs. U.S., Single and Family,
2000 and 2004
California
employees are
28%
27%
26%
23%
contributing
more to
their health
insurance
16%
14%
13%
premiums than
10%
in the past.
CA Single
2000
2004
CA Family
2000
2004
U.S. Single
2000
2004
U.S. Family
2000
2004
Source: CHCF/HRET California Employer Health Benefits Survey, 2004.
©2005 C ALIFORNIA H EALTH C ARE F OUNDATION
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Health Care Costs 101
Annual Out-of-Pocket Spending
Share of Total
Per Capita
$1000
45%
$900
Percentage of all personal
health care spending
$800
$541
$540
35%
continue to
30%
rise, as a share
25%
of all personal
$500
20%
$394
$400
of-pocket costs
for consumers
$700
$600
Although out-
40%
$779
$731
PREMIUMS AND
CONTRIBUTIONS
health care
spending, the
$300
15%
$253
10%
$200
$119
$100
percentage has
declined.
5%
$0
1970
1980
1985
1990
1995
2002
2003
0%
Notes: Selected rather than continuous years of data are shown prior to 2002. Out-of-pocket spending includes direct spending
by consumers for all health care goods and services, such as coinsurance, deductibles, and any amounts not covered by insurance.
Out-of-pocket premiums paid by individuals are not counted here but are counted as part of private health insurance.
Source: Centers for Medicare and Medicaid Services (CMS), Office of the Actuary.
©2005 C ALIFORNIA H EALTH C ARE F OUNDATION
21
Health Care Costs 101
Category Breakdown
APPENDIX
Spending Levels (billions)
Distribution
Growth
2002
1983
2003
2003 over 2002
$1,678.9 $1,559.0
$353.5
100%
7.7%
2003
NATIONAL HEALTH EXPENDITURES (NHE)
1,614.2
1,499.8
336.4
96%
7.6%
1,440.8
1,342.9
308.3
86%
7.3%
• Hospital Care
515.9
484.2
146.3
31%
6.5%
• Professional Services
• Physician and Clinical Services
• Dental Services*
• Other Professional Services*
• Other Personal Health Care*
369.7
74.3
48.5
49.5
340.8
70.9
46.1
45.3
67.8
18.3
5.9
4.3
22%
4%
3%
3%
8.5%
4.8%
5.3%
9.2%
• Nursing Home Care †
110.8
106.6
25.5
7%
4.0%
• Home Health Care †
40.0
36.5
4.2
2%
9.5%
179.2
20.4
32.5
161.8
19.6
31.1
17.3
4.9
13.8
11%
1%
2%
10.7%
4.0%
4.4%
119.7
105.7
18.8
7%
13.2%
53.8
51.2
9.4
3%
5.1%
Research**
40.2
36.5
6.5
2%
10.0%
Construction**
24.5
22.7
10.6
1%
7.7%
Health Services and Supplies (HSS)
Personal Health Care (PHC)
• Retail Outlet Sales
• Prescription Drugs
• Durable Medical Equipment (DME)**
• Other Non-Durable Medical Products**
Administration ††
Public Health Activity**
*Combined to create “Dental/Other Professional.” †Combined as one figure. **Combined to create “Other.” ††“Administration” refers to
government program administration (spending for the cost of running various government health care programs) and net cost of private
health insurance (the difference between premiums earned by insurers and the claims or losses incurred for which insurers become liable).
Source: Centers for Medicare and Medicaid Services (CMS), Office of the Actuary.
©2005 C ALIFORNIA H EALTH C ARE F OUNDATION
22
Health Care Costs 101
Sources and Definitions
RESOURCES
This guide is primarily based on 2003 national data, the latest information on
health spending available from the U.S. Department of Health and Human
Services, Centers for Medicare and Medicaid Services (CMS), and the Office of
the Actuary. Except where noted, “health spending” refers to total national health
expenditures as collected and published by CMS. Projections for 2004 forward
represent those released by CMS in February 2005 and reflect provisions of the
recently passed Medicare Prescription Drug Improvement and Modernization
Act of 2003. Information here on health insurance premiums and employee
contributions comes from the California HealthCare Foundation/Health
Research and Educational Trust annual California employer health benefits
survey. Additional information on the sources used in preparing this document
can be found on the following pages.
©2005 C ALIFORNIA H EALTH C ARE F OUNDATION
23
Health Care Costs 101
Data Resources
CMS Online Resources*
NHE Tables, Historical and Projected:
www.cms.hhs.gov/statistics/nhe/default.asp?
Category Definitions:
www.cms.hhs.gov/statistics/nhe/quick-reference/
National Health Accounts: Definitions, Sources,
and Methods:
www.cms.hhs.gov/statistics/nhe/
definitions-sources-methods/
*As of February 9, 2005
Health Insurance Premium and Contribution Data
California HealthCare Foundation (CHCF)
and Health Research and Education Trust
(HRET), California Employer Health Benefits
Survey, 2004, Oakland, CA.
www.chcf.org/topics/view.cfm?itemid=108023
Kaiser Family Foundation (KFF) and Health
Research and Educational Trust (HRET),
Employer Health Benefits, 2004 Annual
Survey, Menlo Park, CA. Publication #7148.
©2005 C ALIFORNIA H EALTH C ARE F OUNDATION
RESOURCES
Journal Publications Authored by CMS Staff
Cowan, Cathy, Patricia A. McDonnell, Katharine R.
Levit, Mark A. Zezz, “Burden of Health Care
Costs: Businesses, Households, and Governments
1987–2000,” Health Care Financing Review,
Vol 23, Number 3, Spring 2002, pp. 132–159.
Heffler, Stephen, Sheila Smith, Sean Keehan,
Christine Borger, M. Kent Clemens, and
Christopher Truffer, “Trends: U.S. Health
Spending Projections for 2004–2014,”
Health Affairs, Web Exclusive, 23 February 2005.
www.healthaffairs.org.
Lazenby, Helen C., Katharine Levit, Daniel R. Waltdo,
et al, “National Health Accounts: Lessons from the
U.S. Experience,” Health Care Financing Review,
Vol. 13, No. 4, Summer 1992, pp. 89 –103.
Smith, Cynthia, Cathy Cowan, Art Sensenig, Aaron
Catlin, and the Health Accounts Team, “Health
Spending Growth Slows in 2003,” Health Affairs,
Vol. 24, No. 1, January/February 2005,
pp. 185–194.
24