The Cost of Health Care - Increasing Costs

Americans want quality medical care despite its increasingly high cost. In 1960 the United States spent 5.2% of its gross domestic product (GDP—the total value of all the goods and services produced by the nation) on health care. In 1970 this percentage had risen 2% to 7.2%, and by 1980 it had risen to 9.1%—almost another 2%. But in the next thirteen years, health care expenditures rose 4.7%, to 13.8% ($916.5 billion) of the GDP. During the next few years that percentage dropped slightly (although actual dollars continued to rise), but it was back to 13.8% of the GDP by the year 2000. Then in 2001 through 2004 the cost of health care increased dramatically, to 14.6% of the GDP in 2001, 15.4% in 2002, 15.9% in 2003, and 16% in 2004. Table 9.1 compares the growth in national health care expenditures and in GDP, and presents the national health expenditures as a percentage of the GDP (1960–2004).

The Consumer Price Index (CPI) is a measure of the average change in prices paid by consumers. For many years the medical component of the CPI increased at a greater rate than any other component, even food and housing. Between 1960 and 2002 the average annual percent change from the previous year shown in the overall CPI ("All items" in the "average annual percent change from previous year shown" portion of Table 9.2) was well below the average annual percent change for medical care. From 2003 to 2004 the overall CPI increased by 2.7%, while medical care increased by 4.4%.

In 2004, fifty-five cents (55%) of every dollar spent for health care came from private funds, including private health insurance (thirty-five cents), out-of-pocket expenses (thirteen cents), and other private sources (seven cents). The remaining forty-six cents came from federal or state government sources. (The numbers do not add to 100 because of rounding; see Figure 9.1.)

In 2004 hospital and physician costs, traditionally composing the greater part of health care expenses, were 30% and 21%, respectively, while prescription drug costs were 10% of all health care expenses. (See Figure 9.1.)