National health spending jumped 9.7% to $4.1 trillion in 2020 — the highest rate since 2002 — due mainly to the federal government’s response to the COVID-19 pandemic, according to a new analysis from the Office of the Actuary at the Centers for Medicare & Medicaid Services (CMS).
The federal government’s “unprecedented spending” to address the pandemic led to a markedly higher growth rate than the 4.3% growth rate of 2019, and represents approximately $12,530 in healthcare spending per person, said Micah Hartman, a CMS statistician and lead author of the report, during a call with reporters Wednesday.
In addition, as the gross domestic product (GDP) declined 2.2%, the share of the GDP reflective of healthcare spending rose from 17.6% to 19.7% in 2020. This 2.1-percentage-point increase represents the “largest jump in the health spending share of GDP in the sixty-one year history of the National Health Expenditures Accounts,” Hartman and colleagues noted in the report, which was published in Health Affairs.
The year 2020 was “unlike any other in recent memory,” they stressed. “Economic shutdowns, increased pandemic-related hospitalizations, shortages of available medical professionals and personal protective equipment, and increased disease surveillance and testing, among other impacts, all contributed to major changes,” they wrote.
Importantly, total healthcare spending by the federal government rocketed to 36% in 2020 “driven by unprecedented spending in response to the COVID-19 pandemic,” Hartman said, noting that if pandemic-related spending was excluded from the calculations, then the total growth rate for healthcare spending in 2020 would only be 1.9%.
The 36% increase in federal spending was due to three main factors: federal assistance programs such as the Provider Relief Fund and the Paycheck Protection Program, increased public health spending, and growth in federal Medicaid payments.
Much of the federal spending took the form of payment and loan assistance programs to help providers and hospitals with revenue losses due to lower healthcare use and increased costs. These subsidies, while not the result of a “consumed service,” are considered health spending, Hartman said.
The Provider Relief Fund accounted for $122 billion of direct federal subsidies for providers in 2020, while the Paycheck Protection Program extended $53 billion in loans to firms with qualifying expenses, according to the report. The loans are categorized as subsidies because they can be forgiven, and to date, 99% have been, the authors noted.
Increased federal spending on public health included investments in Operation Warp Speed for the development of COVID-19 vaccines and therapeutics (as well as funding for stockpiling both) and investments to support health facility preparedness, Hartman’s group stated.
In addition, federal Medicaid payments increased as a result of faster enrollment growth, and a 6.2-percentage-point increase in the federal medical assistance percentage (FMAP) stemming from the Families First Coronavirus Response Act. For states to achieve eligibility for this higher FMAP rate, they had to agree to certain “maintenance of eligibility provisions and to not disenroll Medicaid beneficiaries,” explained co-author Anne Martin, an economist in the Office of the Actuary, during the call with reporters.
Despite the pandemic and a short related economic recession, the number of insured people in the U.S. inched up slightly from 90.3% in 2019 to 90.5% in 2020, meaning there were roughly 600,000 fewer uninsured people, Hartman said.
There were also major shifts in the type of health coverage in which individuals enrolled:
- About 2.3 million fewer people had employer-sponsored coverage.
- The healthcare marketplace saw a 600,000 bump in enrollment.
- Medicaid saw 3.7 million more enrollees for a 5.1% increase, marking the program’s highest growth since 2015.
- Medicare enrollment increased more slowly in 2020, at 2.1% versus 2.6% in 2019, according to a Health Affairs press release.
The report also broke down healthcare spending trends by payer:
- Private health insurance spending saw a 1.2% dip, and accounted for 28% of total national healthcare expenditures, $1.5 trillion in 2020. The decline in spending was mainly due to lower enrollment and lower use of services. “Pandemic-related reductions in healthcare use particularly for some elective procedures, along with economic shutdowns and moratoria on certain procedures, led to declines in private health insurance spending” across hospital care, physician, and other clinical services and dental services.
- Medicare spending grew at a rate of 3.5% in 2020 versus 6.9% in 2019. Medicare spending was responsible for 20% of total national health spending, $829.5 billion in 2020.
- Fee-for-service (FFS) Medicare spending represented 55% of all Medicare spending in 2020 versus 61% in 2019. The authors credited that overall decline in FFS spending to a 5.5% dip in spending on healthcare goods and services (with the exception of nursing home care and “other non-durable medical products”), but stressed the main drivers were “pronounced decreases in expenditures for hospital care and physician and clinical services” due to beneficiaries going without or delaying non-COVID-19-related care.
- Medicaid spending grew at a rate of 9.2% versus 3% in 2019, and accounted for 16% of total national health spending, at $671.2 billion in 2020. Increased enrollment appeared to be the primary reason for the growth. Medicaid hospital spending, which represents one-third of the program’s expenditures, rose 6.7% versus 4.6% in 2019.
- Out-of-pocket spending fell by 3.7% in 2020 versus a 4.4% increase in 2019, and accounted for 9% of total national health spending. The decline was due in part to lower healthcare use and the fact that COVID-19 testing and treatment involved “little or no cost-sharing requirements,” according to the press release.
With regard to spending for healthcare goods and services, hospital spending saw a 6.4% growth accounting for $1.3 trillion or 31% of all healthcare spending, a 0.1-percentage-point increase over 2019. The authors noted that “faster Medicaid spending growth was offset by a decline in private health insurance expenditures for hospital care … a decline in out-of-pocket-spending for hospital care … and slower growth in Medicare expenditures.”
Spending for physicians and clinical services went up to 5.4%, from 4.2% in 2019, representing $809.5 billion or 20% of all national healthcare expenditures. “The substantial growth in funding from federal programs that provided COVID-19 relief … was the main reason for faster growth in 2020,” according to the authors.
And retail prescription drugs saw 3% growth in 2020, slower than the 4.3% growth rate of 2019, reaching $348.4 billion or 8% of national health spending. This slower growth was driven mainly by a 4.2% decline in out-of-pocket spending on retail drugs. Fewer visits to physicians offices during the pandemic were in part to blame for the decline in new prescriptions and sales of new brand-name drugs, Martin explained.