AHCA Passage Focuses Attention on Cost of U.S. Health Care
May 8, 2017 •
The passage last week of the American Health Care Act (AHCA) by a vote of 217 to 213 in the House of Representatives again put the spotlight on the increasingly important role health care has in the U.S. economy.
How large a share of our economy is represented by health care expenditures? The Centers for Medicare and Medicaid Services (CMS) tracks the health care systems metrics, and CMS is currently projecting that national health expenditures were $3.2 trillion in 2015, or $9,990 per person, which accounted for 17.8% of Gross Domestic Product (GDP). CMS also projects that national health spending will grow at an average rate of 5.6% per year for 2016-25 (4.7% on a per capita basis). CMS projects that healthcare spending will increase 1.2 percentage points faster than the projected growth of Gross Domestic Product (GDP) per year over the 2016-25 period. Because of this disparity, the health share of GDP is expected to rise from 17.8% in 2015 to 19.9% by 2025, as shown below in Figure 1.
Note that this estimate is based on projections of GDP growth that routinely exceed 4%. This is a level of growth that the U.S. economy has seldom experienced over the past decade and one that many economists believe is unlikely to occur. If growth going forward remains in the 2-2.5% range or lower, and health expenditures continue growing at close to 6% as projected by CMS, then the health care portion of GDP will approach nearly a quarter of our economic output by 2025.
Health care spending has several components, not all of which have grown or are expected to grow at the same rate. CMS provides a breakdown on major components of national health expenditures (NHE) as follows:
- Medicare spending grew 4.5% to $646.2 billion in 2015, or 21.2% of total NHE;
- Medicaid spending grew 9.7% to $545.1 billion in 2015, or 17.9% of total NHE;
- Private health insurance spending grew 7.2% to $1,072.1 billion in 2015, or 35.1% of total NHE; and
- The remainder of health care expenditures, ($449 billion, or 14.8% of NHE) consisted of other health insurance programs, like the Children’s Health Insurance Program, or other third party payers (such as worker’s compensation).
Figure 2 shows the breakdown of these expenditures for 2015 (most recent historical data) and as projected for 2025.
The largest shares of total health spending were provided by the federal government (28.7%) and households (27.7%). The private business share of health spending accounted for 19.9% of total health care spending, state and local governments accounted for 17.1%, and other private revenues accounted for 6.7%.
Contact ACA’s Allen Irish for more information.
 In the current issue of Foreign Affairs, economist Ruchir Sharma identifies a number of reasons why growth is unlikely to reach or exceed 2.5% annually for the foreseeable future (“The Boom Was a Blip,: Foreign Affairs, May/June 2017.)