HEALTH

Health Care Costs

Health care expenditures increased sharply toward the end of the century.

By 1960, health care expenditures had risen moderately to 5.1 percent of GDP or $20 billion. A third of this total—$6.6 billion—was borne by the federal government, primarily for medical and hospital treatment of World War II veterans. 

The introduction of Medicare and Medicaid in 1966 began a period of sharper growth. Per capita health care costs nearly tripled between 1970 and 1997. The cost of Medicare benefits for the elderly was borne by the federal government. The cost of Medicaid benefits for the poor and disabled was divided between the federal government and the states. 

This substantial infusion of public money was one factor that stimulated price increases throughout the health care sector. During the subsequent thirty years, the annual inflation of medical, hospital, and pharmaceutical prices significantly exceeded the general rate of inflation. Total health expenditures as a percentage of GDP rose to 13.5 percent in 1997, up from 7.9 percent in 1980. Meanwhile, the share borne by the federal and state governments rose to nearly half of the total. 

At the end of the century, hospital charges were the largest single component in the trillion-dollar price of health care in the United States, accounting for about half of all third-party health care payments by government agencies and private insurers. Less than 5 percent of hospital patients paid all or most of their own charges, although copayments were often substantial. Between 1950 and 1995, the average cost per patient-day in general hospitals, excluding the effect of inflation, increased by more than 1,000 percent. 

Before World War II, hospital charges were billed directly to patients. As late as 1939, only 6 percent of Americans were covered by any form of hospital or surgical insurance. That percentage increased to 51 percent in 1950 and 86 percent by 1970, approximately the same level it was at the end of the century. 

Among the major causes of the increase in hospital costs were improvements in medical technology, advanced diagnostic equipment, and expensive procedures such as burn victim recovery, coronary bypass surgery, organ transplants, and the care of premature infants.

Source Notes
Source Abbreviations

SA 1999, table 1422. For the hospital share of health care costs, see SA 1999, table 168. For the proportion of the population covered by health insurance, see SA 1999, table 185.

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