U.S. Health Spending Normalizes Post-Pandemic with a Decrease in GDP Share

The summary of the recent report on U.S. health spending is as follows:

1. Annual Health Spending Growth: U.S. health spending increased by 4.1% in the last year, reaching $4.5 trillion. This rate of growth is more aligned with the pre-pandemic era.
2. Health Spending vs. GDP: The overall share of the nation’s gross domestic product (GDP) devoted to health care decreased for the second consecutive year. This marks a significant change from the long-standing trend where health expenditures consistently consumed a more substantial portion of the GDP. In 2020, during the peak of the COVID-19 pandemic, health spending accounted for a record 19.5% of GDP, but this percentage dropped to 17.3% in 2022.
3. Healthcare Inflation: The rise in healthcare prices was relatively moderate compared to the overall inflation in the economy. In 2022, healthcare inflation was recorded at 3.2%, whereas the general inflation rate was 7.1%.
4. Government Programs and Contracts: Government programs and long-term contracts cover a substantial part of health care costs, which typically adjust payment rates more slowly than private market prices.
5. Medication Costs Growth: The expenditure on retail prescription drugs significantly outpaced the overall growth in health spending. In 2022, spending on these drugs increased by 8.4%, exceeding $400 billion, mainly driven by high-priced diabetes and obesity medications.
6. Post-Covid Healthcare System: The report suggests that the healthcare system is gradually moving beyond the extreme conditions experienced during the Covid crisis. This transition impacts various companies, including Pfizer Inc., which experienced a boom due to the high demand for COVID-19 vaccines and treatments.

While U.S. health spending continues to grow, its pace has normalized compared to the pandemic, and the sector’s share in the national economy is slightly decreasing. Additionally, the report highlights the significant increase in medication costs, especially for prescription drugs.

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[Source: Bloomberg, December 13th, 2023]