The Growth of Health Spending in the USA: 1776 to 2026

Abstract

This review utilizes a number of historical and contemporary sources to trace the growth of national health expenditures in the United States from 1776 to 2026, supporting four empirical generalizations: 1) Peak rates of growth occurred during the decade 1960-1970 as the modern national health system took shape. This surge in spending was fostered by large public investments in workforce training, buildings, equipment and research and began prior to the implementation of Medicare and Medicaid. 2) Growth was significantly more rapid from 1975-1995 than from 1995-2015 for reasons that are not fully clear. 3) The health share of GDP was almost constant near 4% from 1930-1955 despite major advances in technology, organization and financing. 4) There are lags between macroeconomic fluctuations and corresponding changes in health expenditure. Examination of annual data can estimate business cycle lags on the order of 3 to 6 years with confidence. However, there may also be low-frequency lags over multiple decades that cannot yet be clearly delineated with the available data. Modern medical care in 2015 is still recognizably close in form to the 1970 version, much more so than medical practice in 1970 was to that in 1930 or 1945. Highly organized and regulated, with academic medical centers at the core, there is “almost” universal insurance coverage for more than 80% of the population that subsidizes a safety net for the remainder. This patchwork of public and private insurance has cracked and frayed as the health share of GDP expanded toward 20% of GDP making the current system appear unsustainable and portending major revisions within the next twenty years. Issues regarding measurement of national health expenditures, market definition, temporal dynamics, and decomposition are discussed. Appendices provide information on data sources and modeling.