What drives the cost of health care? Health insurance companies, right? Wrong‼️
Political rhetoric insists on equating health insurance premiums with health care and the cause of higher costs. Health insurance premiums reflect the cost and use of health care. Contrary to political opinion, insurance company profits are not major drivers of higher premiums. It is true, however, that federal and state taxes and fees increase premiums.
Take a look at the data from CMS.
The share of the economy devoted to health spending was relatively stable in 2019, at 17.7% compared with a 17.6% share in 2018. The 4.6% growth in healthcare expenditures was faster than the 4.0% overall economic growth as measured by Gross Domestic Product (GDP) in 2019. The growth in total national healthcare expenditures in 2019 reached $3.8 trillion, or $11,582 per person, up from 2018 when total national health expenditures were $3.6 trillion, or $11,129 per person.
Spending for personal health care, which includes health care goods and services, accounted for 84% of total health care spending in 2019 and increased 5.2%, a faster rate than the 4.1% it increased in 2018. The faster growth in personal health care spending was driven largely by growth for hospital care, retail prescription drugs, and physician and clinical services.
Offsetting the faster growth in personal health care spending was a decline in the net cost of health insurance, which includes nonmedical expenses such as administrative costs, taxes, and underwriting gains or losses. The net cost of health insurance declined 3.8% in 2019 largely because of a suspension of the health insurance providers’ tax. (🔴)
Private health insurance spending (31% of total health care spending) increased 3.7% to $1.2 trillion in 2019, which was slower than the 5.6% rate of growth in 2018. The deceleration in overall private health insurance spending growth was driven by a 7.9% decline in the net cost of private health insurance that was primarily the result of the suspension of the health insurance tax in 2019. Private health insurance enrollment increased slightly in 2019, by 0.5%, as enrollment in employer-sponsored insurance increased 0.7%.
Medicare spending (21% of total health care spending) grew 6.7% to reach $799.4 billion in 2019, which was slightly faster than the 6.3 % growth in 2018. The acceleration in 2019 reflected faster growth in Medicare private health plan spending (39% of total Medicare expenditures in 2019), which increased 14.5% following growth of 12.6% in 2018. Growth in fee-for-service Medicare expenditures slowed in 2019, increasing 2.2% compared to 3.0% growth in 2018. Overall, Medicare enrollment growth was steady in 2019, increasing 2.6%—the same rate as in 2018.
Medicaid spending (16% of total health care spending) increased 2.9% in 2019 to reach $613.5 billion. This was similar to the 3.1% rate of growth in 2018. This relatively steady growth was influenced by faster spending growth for most goods and services and a decline in the net cost of insurance—a decline that was in part due to the health insurance tax moratorium in 2019. In 2018 and 2019, Medicaid enrollment was estimated to have decreased 0.9% and 1.5%, respectively.
Out-of-pocket spending (11% of total health care spending at $406.5 billion in 2019) includes direct consumer payments such as copayments, deductibles, and spending not covered by insurance. Out-of-pocket spending grew 4.6% in 2019, which was faster than the 3.8% growth in 2018.