Growing Health Care Costs
The United States spends nearly three times more per person on health care than other developed countries. Health care spending grew to one-fifth of the total economy, or $4.1 trillion, in 2020—and is anticipated to grow to $6.2 trillion by 2028, outpacing gross domestic product.
While spending has grown across all payer types (e.g., Medicaid, Medicare and commercial payers), per enrollee spending by private insurers has grown most rapidly over the last decade. And, with over 60% of Americans covered by commercial payers, this spending can translate to higher out-of-pocket costs for many consumers. Nearly half of insured adults report difficulty affording their out-of-pocket health care costs.
Drivers of Health Care Spending
Various factors contribute to health care spending, including utilization, prevalence of chronic disease, an aging population, innovations in technology and research, and unit prices for services.
While these factors are part of the equation, many experts say that increasing prices for health care services and fees is the key driver of spending. According to 2018 data, the largest category of health spending was inpatient and outpatient care. This includes payments to hospitals, outpatient clinics and physicians for services such as specialist visits, surgical care, and facility and professional fees.
State Policy Options
State legislators may consider various options to contain commercial health care costs and reduce out-of-pocket costs to consumers. State strategies range from addressing prices to targeting utilization and unnecessary care. State policy options include:
- Implement value-based payment arrangements.
- Improve transparency in health care prices and patient costs.
- Assess health care market consolidation and competition.
- Leverage state premium rate review processes to curb rising premiums.
- Limit out-of-pocket costs for certain services, treatments or prescription drugs.
- Evaluate strategies to prevent patients from receiving costly medical bills and safeguard those struggling with medical debt.
- Consider how health care spending and utilization data can be used to monitor and control spending.
Examples of state cost containment strategies from the 2022 legislative session can be found in the costs, coverage and delivery state legislative database.