2020 was 'a year unlike any other' when it came to health care spending

Spending on health care in the U.S. increased almost 10% in the first year of the COVID-19 pandemic, a new study has found, with health care’s overall share of the economy spiking to almost 20%.

A new report published in Health Affairs outlines the impact of the pandemic on health care spending in 2020 for the U.S., saying the year was “unlike any other in recent memory.” The numbers show that US health care spending increased 9.7% to reach $4.1 trillion in 2020, with the share of the economy devoted to health care reaching 19.7%.

The unique impact of a global pandemic on the world’s largest economy was felt in many ways, and some of them may have been surprising. With the expansion of government programs, uninsurance fell in the U.S. slightly, despite a big increase in unemployment in the early months of the pandemic. Outside of federal spending, the rate of increase in health care spending actually dropped in 2020, increasing at 1.9%, compared to an increase of 4.3% in 2019. With so many preventative, elective, and health management services shutting down or being reduced during 2020, people also paid less out-of-pocket: Americans’ spending on copayments and deductibles declined by 3.7% for the year.

The government steps in

As businesses closed, schools shut down, and people stayed home, the federal government stepped in to provide a safety net—and health care was a major part of that effort, the report found.

“Health care expenditures that were financed by the federal government increased rapidly, at 36% in 2020. Growth was driven mainly by spending for the Provider Relief Fund and Paycheck Protection Program loans, increased spending for federal public health activity, and growth in the federal portion of Medicaid payments,” the report said.

The federal programs helped offset a decline in state and local health care spending: government spending at those levels decreased 3.1% in 2020 after growing by 1.7% in 2019.

Insurance coverage also was helped by government intervention: employer-sponsored plans saw a decrease in 2.3 million enrollees, largely due to job losses. But the Affordable Care Act (ACA) marketplace for private enrollment grew by 600,000 members, and Medicaid programs grew by 3.7 million (5.1%) after declining in 2018 and 2019.

“The 2020 [Medicaid] increase was the largest since 2015 and can be attributed to pandemic-related job losses as well as enactment of Section 6008 of the Families First Coronavirus Response Act,” the report said. Overall, the number of uninsured people in the U.S. decreased by 600,000 to 31.2 million.

A decline in spending by employer-sponsored plans

The study found a drop in health care expenditures by private businesses; spending in that area declined 3.1% in 2020 after increasing 3.8% in 2019.

“The largest share of private businesses’ health spending was contributions to employer-sponsored private health insurance premiums (a 76 percent share of private business spending), which declined 3.6% in 2020 after a 4.1% increase in 2019,” the study said. “This reflects a decline in enrollment as well as a reduction in spending by self-insured employers resulting from declines in the use of health care goods and services by their employees.”

Overall, private health insurance spending (which included both employer plans and ACA marketplace plans) accounted for 28% of total health care expenditures, or $1.15 trillion in 2020. That was a decrease of 1.2%, due to both declines in enrollment and lower utilization. Total private health insurance spending for medical goods and services declined 3.5% in 2020.

Reaction to the new report has been mixed. An Axios analysis noted that the large increase in federal funding has led to historic profits for some companies in the health care industry. Larry Levitt, Executive Vice President for Health Policy at the Kaiser Family Foundation, noted on Twitter that private health insurance spending in the U.S. declined in 2020 for the first time ever. He called the federal investment “remarkable,” noting that, “Medicaid and the ACA served as a safety net as many people lost jobs. The government stepped in to dramatically expand public health. And the federal government provided financial relief to health care providers.”