Dog Bites Human
Health Care Spending is Growing Faster than the Cost of Living
Just before the holidays, the federal Centers for Medicare and Medicaid Services (CMS) released its National Health Expenditures (NHE) data files. According to an initial summary in Health Affairs by CMS staff, “[h]ealth care spending in the US reached $4.9 trillion and increased 7.5 percent in 2023.” Adjusted for population growth, expenditures per person grew by 7.0%. In other words, U.S. health care spending grew much faster than the general cost of living in 2023.
Again. As usual. Still. Happy New Year.
In 2021 and 2022, the unusual economic and health care conditions created by COVID-19 drove the rate of consumer inflation above the pace of growth in per capita health care spending for only the third and fourth years this century. 2023 brought conditions back to “normal.”
The government’s simplest measure of consumer prices* grew by 4.1% from 2022 to 2023, still higher than any year this century before 2022. But at 7% growth, per person health care spending increased 70% faster than the rate of general inflation. Believers in half full glasses can take comfort knowing that’s an improvement on the results so far during the 21st century. From 2000 to 2023, health care expenditures per person grew 261% faster than consumer inflation.
New Data, Old Narratives: The NHE files hold a lot of juicy data (CMS fact sheet and file downloads here), which we’ll get to in a moment. But perhaps the most remarkable result is the collective shoulder shrug. Buried a week before Christmas, the story didn’t exactly seize the holiday news cycle. It’s as if extreme U.S. health care cost growth is like the weather - it just kind of happens and, well, it’s all very complex and so very difficult to fix.
Worse, here’s what the federal government’s expert staff wanted Health Affairs readers to take away from their initial summary:
Oh. Well, never mind then! More Americans have insurance and we’re getting more health care? Sure, we spend a little more than other countries, but this is kind of good news, right?
As we’ve reported over and over and over and over again, hyping the rate at which Americans have “insurance” is a doubly cherry-picked distraction from the ongoing crises of cost, access and quality in U.S. health care.
With the growth in underinsurance in the past decade, “uninsurance” no longer measures the inability of people to get health care when they need it. Out of pocket costs drive nearly half of U.S. “working age” adults to skip needed health care due to cost, including 36% of people who are supposedly well-insured. The percentage of adults who reported skipping care actually grew slightly between 2022 and 2024, at the same time CMS is telling us we got more health care.
As everyone paying attention to New York City crime news knows, when we do try to visit doctors, hospitals and other providers, or fill a prescription, private insurers routinely deny claims, leaving private health “insurance” as a false promise of security.
Framing rapid cost growth as the result of increased insurance coverage and a resulting growth in the use of services not only validates the Biden/Harris progress narrative, it also risks reviving the ancient, false belief that the U.S. spends so much because we get too much health care. We don’t.
Headlining Data Not Counted: There are reasons to think we used more health care in 2023 than 2022, and reasons to suspect we didn’t. But you can’t possibly know from the NHE tables. The files contain thousands of data points on spending from the last 53 years, but not a single scrap of data about how often we see our doctors, go to the hospital, take medicine, pour our hearts out to mental health professionals or get lovingly tortured by physical therapists. CMS’s “utilization” headline is based on speculative analysis of a wobbly metric.
The quick version is that the agency calculates how fast the underlying prices of health care services are growing (4.5%), then accounts for population growth. They just assume the rest is caused by either “utilization” or “intensity of service.” The agency’s price measurement isn’t particularly good, largely because no one has a good one yet (see A Little Extra for the Data Curious below†). But even taking it at face value, notice that “utilization” made the headline but “intensity of service” didn’t.
Formally, intensity of service would mean that costs grew faster in 2023 because people got more complicated, expensive treatment on average. That’s a reasonable hypothesis when we know millions of patients are hesitating to risk bankruptcy and fight through corporate insurance bureaucrats to get care. Forty percent of patients who skipped care told Commonwealth Fund surveyors their conditions got worse, so patients may need more intense care when they finally get it. But “intensity of service” can also be a euphemism for “fraud.” Insurers and hospitals scam payment systems out of billions of dollars by claiming patients are sicker than they are and needed more “intense” service than they actually got.
Real Headlines and Questions: For whatever reason, CMS and Health Affairs chose to highlight their guess that we’re getting more health care rather than their guess that insurance fraud and/or more intense service caused by delaying health care due to un- and underinsurance drove 2023’s health care cost growth. In either case, it’s unfortunate that they emphasized things they didn’t count directly because the NHE tables are full of useful information about things the data set actually does count. Here are a few alternative headlines to highlight the NHE’s more reliable results, with some questions that policymakers and reporters might want to ask.
National Health Expenditures In 2023: Faster Growth As Private Employers Get Walloped Hardest - Overall spending by private businesses grew by 11% between 2022 and 2023, more than households and governments (Table 5). Private employers’ cost of buying health plans from their golfing buddies in the insurance industry grew by 13% while the federal government’s cost for workers increased 6.2% and state and local governments experienced a 9% growth in the cost of private insurance for their workers (Table 24).
Key Question: Why in the world do employers insist on using their political power to keep control of health care spending? They’re no good at it and it costs them incredible amounts of money compared to their international competitors.
National Health Expenditures In 2023: Faster Growth As Hospitals, Drugs, Home Health and non-Physician Providers Drive Spending - spending on hospital care and retail prescription drugs increased by 10.4% and 11.4%. Growing from a smaller base, Home Health Care (10.8%) and “other professional services,” (establishments run by private-duty nurses, chiropractors, physical therapists, etc.) also grew at double digit rates (Table 2). These categories are defined by who controls the sites of service not what kind of care was actually delivered, so readers should draw conclusions very carefully. Still…
Key Question: Will anyone with any power ever do anything real to get control of the hospital industry, which remains the largest single segment of health care spending and has been gobbling up physician practices since the beginning of the century?
National Health Expenditures In 2023: Faster Growth As Bureaucracy Expan…Oops We Didn’t Count that Either - No country approaches the U.S. for the amount of money diverted to administration from direct health care. Yet the NHE doesn’t even try to count the dollars poured down bureaucratic ratholes, even though Healing and Stealing’s co-authors long ago devised rigorous methods to do so.**
CMS reports only the costs of “Government Administration” and the “Net Cost of Health Insurance,” totalling $360 billion in 2023, or 7% of total expenditures (Table 2). This is only a tiny fraction of U.S. administrative costs. It ignores the blizzard of paperwork that buries providers, employers and patients when you put 6 million employers and dozens of government entities in charge of buying tens of thousands of private health insurance “products.”
Health care requires administration, but in reality, just the excess bureaucracy and profit in the U.S. health care system dwarfs the entire sum in the NHE’s incomplete line items. A study by David Himmelstein, Terry Campbell and Steffie Woolhandler in the Annals of Internal Medicine found that 34.2% of all U.S. national health expenditures in 2017 went to administration, compared to just 17.0% in Canada.
The percentage is probably higher today, but if it remained constant, it means we spent $1.66 trillion on health care bureaucracy, overhead and profit in 2023, and $827 billion more than we would have spent if the U.S. system matched Canada’s efficiency (a major reason the Congressional Budget Office and other economic analysts think single-payer Medicare for All can both dramatically expand coverage and control costs).
The overwhelming majority of this useless spending goes to private bureaucrats and investors. Medicare and Medicaid operate with around 2% and 5% administrative costs respectively, and outsourcing these programs to private insurance is driving those public costs up. According Himmelstein, Campbell and Woolhandler, the percentage of national health expenditures devoted to administration grew from 30.0% in 1999 to 34.2% in 2017. Three-quarters of the increase “was due to growth in private insurers' overhead, mostly because of high overhead in their Medicare and Medicaid managed-care plans”.
Key Question: Why do U.S. legislators love health care bureaucracy so much that they fight so hard against getting rid of its most pernicious source - private health insurance?
National Health Expenditures In 2023: Faster Growth As Patients’ Expenses Outpace the Cost of Living - During a time of political transition, attributing per person health care cost growth at 170% of the rate of consumer inflation to more people having insurance and/or patients getting more health care without solid evidence that it actually happened is irresponsible. U.S. politicians are always looking for reasons not to rein in corporate health care looting and it’s disappointing to see alleged experts feed narratives that the status quo is working or that costs are rising because we actually get health care.
The alternate headlines above highlight several of the NHE’s most extreme data points, but a glance at Table 3 shows that out of pocket expenditures grew by 7.2% in 2023, or 6.7% when adjusted for population growth. At a moment when voters, politicians and media are screaming about inflation while patients skip health care en masse due to cost, out of pocket spending on health care increased by 164% of the cost of living. In a nation uniquely plagued by medical debt that spends twice what other wealthy nations spend on alleged health care, there remains no excuse for this situation.
Again. As usual. Still. Happy New Year.
A LITTLE EXTRA FOR THE DATA CURIOUS
*Consumer Price Index for All Urban Consumers, Not seasonally adjusted
†The technical discussion of measuring health care price inflation is long and laborious. Healing and Stealing has sworn to stop creating three-month research projects just to deliver a single paragraph in what should be a quick, readable column. We’ll leave the mind-numbing technical issues for another day. Briefly:
CMS’s health care price “deflator” isn’t bad as attempts to measure the growth of health care prices go, but that’s a low research bar to clear. The government and academics have struggled with the issue for more than twenty years. Guessing how fast utilization and service intensity are growing by backing price inflation out of total cost growth may be worth doing when all you have is money and insurance enrollment data, but headlining the result in a politically-charged frame is a disservice to policymakers and the public, especially when your data set includes a wealth of other valuable and more reliable information. The NHE files’ value as a measure of utilization or service intensity is marginal at best. As discussed in a previous edition of “A Little More…”, CMS’s time would be better spent twisting U.S. health care trade associations’ arms to bring their proprietary utilization data out from behind a paywall.
††Healing and Stealing takes the NHE’s ”Net cost of health insurance” at face value, but it’s another area that has proven challenging in government reporting. For example, the Bureau of Labor Statistics has published a cost of health insurance inflation metric for years, but admits it’s worthless and is rewriting it, to their credit.
**Steffie Woolhandler and David Himmelstein invented the research techniques for measuring health care administrative costs. They have held up to scrutiny for forty years, getting clearer and sharper with time. Even conservative academcs and think tankers rely on them in their own twisted way, often attributing our suffocating private health care bureaucracy entirely [and fraudulently] to government regulation.