Inflation-Adjusted Health Care Spending is Falling for the First Time in Half a Century

[Greenbeard]

Unusual times all around. Post- pandemic health care spending bump, and in many cases pre-contract negotiations between health care providers and insurers that will set health care prices for the next few years, health care spending seems to have done something it never does: fallen.

Inflation-Adjusted Health Care Spending is Falling for the First Time in Half a Century

In the sixty-year period from 1960—the first year tracked in the official CMS National Health Expenditure Accounts—to 2020, growth in national health spending has always been positive and greater than economywide inflation, leading to a continual increase in real or “inflation-adjusted” US health spending. . .

Yet, for the first time in 2021, real health care spending growth was flat, and in the first quarter of 2022, real health care spending actually declined by 1.7% year over year (Figure 1). This is seven full percentage points lower than the long-term average (+5.3%). As a result, we have also seen health spending decline as a percentage of US GDP (falling from a peak of over 20% in mid-2020 to 18.0% in May 2022) as overall US economic growth has rebounded much faster than health spending in the post-2020 period.

This decline in real health care spending is driven largely by a decline in health care price growth relative to economywide inflation (though slower utilization growth has also had an impact).

When we measure the impact of health spending relative to total consumer personal consumption expenditures (PCE) tracked by the Bureau of Economic Analysis (BEA), we find that nominal medical spending as a percent of PCE has fallen since its peak of 20.8% in 2019 to 19.5% in Q1 2022 (Figure 3) and has undergone the greatest percentage point decline since 1960 for that series.

 

[tshade]