The Cost of Health Care - Increasing Costs

Americans want quality medical care despite its increasingly high cost. In 1970 the United States spent a little more than 7 percent of its gross domestic product (GDP—the total value of all the goods and services produced by the nation) on health care. In 1995 health care expenditures were at a high of 13.4 percent ($990.2 billion) of the GDP. Between 1996 and 2000 that percentage dropped slightly, although actual dollars continued to rise. In 2001 and 2002, however, the cost of health care increased dramatically, to 14.1 percent ($1,420.7 billion) of the GDP in 2001 and 14.9 percent ($1,553.0 billion) of the GDP in 2002. 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 (1980–2002).

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 (as shown in Table 9.2) was well below the average annual percent change for medical care. Between 2001 and 2002 the overall CPI increased by 1.6 percent, while medical care increased by 4.7 percent.

In 2002, 54 cents of every dollar spent for health care came from private funds, including private health insurance (35 cents), out-of-pocket expenses (14 cents), and other private sources (5 cents). The remaining 46 cents came from federal or state government sources. (See Figure 9.1.) In 2002 hospital and physician expenditures, traditionally composing the greater part of spending, were 31 percent and 22 percent, respectively, while prescription drug costs were 11 percent of all money spent on health care.