Healthcare spending growth slowed in 2021 as COVID funding waned

By Alex Kacik / December 14, 2022

U.S. healthcare spending totaled $4.3 trillion in 2021, an increase of just 2.7% from a year earlier as COVID-19 relief funding waned, the Centers for Medicare and Medicaid said Wednesday.

Healthcare spending jumped 10.3% in 2020—the largest growth rate since 1984—when the federal government distributed $193.1 billion designed to offset providers’ losses related to the pandemic.

Provider Relief Fund and Paycheck Protection Program funding decreased 63% to $71.9 billion last year. Federal spending for public health activity, including vaccine development and health facility preparedness funding, decreased to $78.8 billion, from $135.8 billion in 2020.

As a result, healthcare spending in 2021 constituted 18.3% of the nation's gross domestic product, down from 19.7% in 2020.

"The trends in health care spending in 2021 are linked to the many unique impacts of the COVID-19 pandemic, including the substantially reduced federal COVID-19 supplemental and public health expenditures and an increase in the use of health care goods and services as people sought care at a higher rate than in 2020,” Anne Martin, an economist in the CMS Office of the Actuary and lead author of the analysis published Wednesday in Health Affairs, wrote in the report.

Excluding spending related to public health and related federal programs, national health expenditures grew 7.6% in 2021 compared with 2.3% in 2020 as the COVID-19 vaccine became widely available and healthcare utilization rebounded.

Hospital, physician and prescription drug spending all increased, but in most cases, the percentage gains were smaller than a year earlier. Hospital spending, which amounted to $1.3 trillion and 31% of overall health care spending, rose 4.4%, compared with 6.2% in 2020.

Physician and clinical spending, which amounted to $864.6 billion and 20% of overall healthcare spending, rose 5.6%, compared with 6.6% in 2020.

Prescription drug spending, which totaled $378 billion and 9% of overall healthcare spending, rose 7.8%, compared with 3.7% in 2020. 

Medicare spending totaled $900.8 billion, or 21% of U.S. healthcare spending. Spending increased 8.4%, compared with 3.6% in 2020. Medicare enrollment growth slowed to 1.7%, down from 2.1%. 

Medicaid expenditures accounted for 17% of overall spending, at $734 billion. Medicaid spending grew 9.2% in 2021, similar to 2020. Medicaid enrollment increased by 11.2% in 2021, a result of legislation that kept people enrolled in the program irrespective of changes in income.

The number of uninsured individuals declined for the second consecutive year, dropping from 31.2 million people in 2020 to 28.5 million individuals in 2021.

Healthcare spending was higher across provider types except nursing homes. Nursing home expenditures dropped from $196.9 billion in 2020 to $181.3 billion in 2021. Spending on government public health activities also decreased from $238.3 billion in 2020 to $187.6 billion in 2021.

Employer-sponsored insurance enrollment declined for the second consecutive year, falling by 400,000 people in 2021. Private employers’ spending on healthcare rose 6.5% after decreasing by 2.9% in 2020. Most of that increase was attributed to a 6.5% increase in private health insurance premiums in 2021 after a 3% decline in 2020.

Patients' out-of-pocket spending increased by 10.4% in 2021—the fastest rate of growth since 1985—after a 2.6% decrease in 2020.