National health expenditure growth in the 1980's: an aging population, new technologies, and increasing competition

Abstract

Health care spending in the United States more than tripled between 1971 and 1981, increasing from $83 billion to $287 billion. This growth in health sector spending substantially outpaced overall growth in the economy, averaging 13.2 percent per year compared to 10.5 percent for the gross national product (GNP). By 1981, one out of every ten dollars of GNP was spent on health care, compared to one out of every thirteen dollars of GNP in 1971. If current trends continue and if present health care financing arrangements remain basically unchanged, national health expenditures are projected to reach approximately $756 billion in 1990 and consume roughly 12 percent of GNP. The focal issue in health care today is cost and cost increases. The outlook for the 1980's is for continued rapid growth but at a diminished rate. The primary force behind this moderating growth is projected lower inflation. However, real growth rates are also expected to moderate slightly. The chief factors influencing the growth of health expenditures in the eighties are expected to be aging of the population, new medical technologies, increasing competition, restrained public funding, growth in real income, increased health manpower, and a deceleration in economy-wide inflation. Managers, policy makers and providers in the health sector, as in all sectors, must include in today's decisions probable future trends. Inflation, economic shocks, and unanticipated outcomes of policies over the last decade have intensified the need for periodic assessments of individual industries and their relationship to the macro economy. This article provides such an assessment for the health care industry. Baseline current-law projections of national health expenditures are made to 1990.

Figure 1. Total National Health Expenditures 1965 to 1990, with Bandwidth Intervals¹

¹The bandwidth intervals around the baseline projection scenario provide one indicator of variability. The standard error associated with annual percent increases in total national health expenditures for 1966-1981 (see Table A-12) was multiplied by a t-distribution value of 2.131 to derive the bandwidth intervals. The calculated bandwidth intervals are approximate and are used as a rough guide in assessing variability and uncertainty.

Figure 2. The Share National Health Expenditures are of GNP 1965 to 1990, with Bandwidth Intervals¹

¹The bandwidth intervals around the baseline projection scenario provide one indicator of variability. The standard error associated with annual percent increases in the ratio of national health expenditures to GNP for 1966-1981 (see Table A-11) was multiplied by a t-distribution value of 2.131 to derive the bandwidth intervals. The calculated bandwidth intervals are approximate and are used as a rough guide in assessing variability and uncertainty.

Figure 3. Percent Distribution of Total National Health Expenditures by Source of Funds for Selected Years, 1950 to 1981

Figure 4. National Health Expenditures as a Percent of Government Expenditures for Selected Years, 1950 to 1981

Figure 5. Factors Accounting for Growth in Expenditures for Community Hospital Inpatient Care 1971 to 1981

Figure 6. Factors Accounting for Growth in Total Health Costs 1971 to 1981

Figure 7. Total Systems Cost Per Capita 1965 to 1990, with Bandwidth Intervals^{1 2}

¹The bandwidth intervals around the baseline projection scenario provide one indicator of variability. The standard error associated with annual percent increases in total systems cost per capita for 1966-1981 (see Table A-15) was multiplied by a t-distribution value of 2.131 to derive the bandwidth intervals. The calculated bandwidth intervals are approximate and are used as a rough guide in assessing variability and uncertainty. ²Total systems cost per capita is also referred to as personal health care spending per capita.

Figure 8. Constant Dollar Total Systems Cost Per Capita 1965 to 1990, with Bandwidth Intervals¹ (Inflation-Adjusted to 1972 Dollars)²

¹The bandwidth intervals around the baseline projection scenario provide one indicator of variability. The standard error associated with annual percent increases in constant dollar (inflation adjusted) total systems cost per capita for 1966-1981 (see Table A-15) was multiplied by a t-distribution value of 2.131 to derive the bandwidth intervals. The calculated bandwidth intervals are approximate and are used as a rough guide in assessing variability and uncertainty. ²Total systems cost per capita (personal health care spending per capita) was deflated by the implicit price deflator for the GNP.

Figure 9. Total Hospital Expenditures 1965 to 1990, with Bandwidth Intervals¹

¹The bandwidth intervals around the baseline projection scenario provide one indicator of variability. The standard error associated with annual percent increases in total hospital expenditures for 1966-1981 (see Table A-12) was multiplied by a t-distribution value of 2.131 to derive the bandwidth intervals. The calculated bandwidth intervals are approximate and are used as a rough guide in assessing variability and uncertainty.

Figure 10. Expenditures for Physicians' Services 1965 to 1990, with Bandwidth Intervals¹

¹The bandwidth intervals around the baseline projection scenario provide one indicator of variability. The standard error associated with annual percent increases in expenditures for physicians' services for 1966-1981 (see Table A-12) was multiplied by a t-distribution value of 2.131 to derive the bandwidth intervals. The calculated bandwidth intervals are approximate and are used as a rough guide in assessing variability and uncertainty.

Figure 11. Factors Accounting for Growth in Expenditures for Dentists' Services 1971 to 1981

Figure 12. Drug Industry Trends for Productivity and Inflation-Adjusted Prices (Consumer and Producer), 1965 to 1981

Figure 13. Factors Accounting for Growth in Expenditures for Nursing Home Care (Excluding ICF-MR) 1971 to 1981

Figure 14. Expenditures for Nursing Home Care (Excluding ICF-MR) 1965 to 1990, with Bandwidth Intervals¹

¹The bandwidth intervals around the baseline projection scenario provide one indicator of variability. The standard error associated with annual percent increases in expenditures for nursing home services (excluding ICF-MR) for 1966-1981 (see Table A-12) was multiplied by a t-distribution value of 2.131 to derive the bandwidth intervals. The calculated bandwidth intervals are approximate and are used as a rough guide in assessing variability and uncertainty.

Figure 15. Quarterly Percent Changes in Community Hospital Inpatient Days for Aged and Nursing Home Employment, 1972 to 1982¹

¹Quarter-to-quarter percent changes are graphed, not percent changes from same quarter a year ago.

Figure 16. Index of Nominal and Real Expenditures for Construction of Medical Facilities, 1965 to 1981 (1965 = 100.0)