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Personal Health Care Expenditures, by Source of Payment
Personal health care expenditures reflect the nation's expenditures for the care of individuals, and exclude spending for research, construction, government public health activities, and expenses for prepayment and administration. Expenditures for personal health care services come from a variety of sources, with the principal ones being direct payments by the patient (so called "out-of-pocket" payments), private insurance benefits, and public programs.
In aggregate terms, payments from all of these sources have steadily increased. However, the relative contribution of each of these sources of payment has shifted over the past decades. The portion made by direct payments has steadily declined for nearly 50 years, dropping from more than 88 percent in FY 1929 to 52 percent in FY 1965 and 32 percent in FY 1976. This decline has been caused by increases in payments from two other sources--insurance benefits and public programs. The most dramatic growth in insurance benefits was during the 1950's and early 1960's. Public programs assumed a rapidly increasing share of personal health care payments after the enactment of Medicare and Medicaid in 1965. The following table presents the data on a historical basis. CRS-5
AMOUNT AND PERCENTAGE DISTRIBUTION OF PERSONAL HEALTH CARE EXPENDITURES, BY SOURCE OF FUNDS, SELECTED FISCAL YEARS, 1929-1975
Direct payments include any insurance benefits.
Source: Gibson, Robert M., and Mueller, Marjorie Smith. "National Health Expenditures, Fiscal Year Social Security Bulletin, Vol. 40, No. 4, April, 1977.
D. Sources of Increase in Personal Health Care Expenditures
These increases in aggregate health expenditures are caused by a number of factors. The Social Security Administration has summarized the three components of the increased spending as follows:
changes in the prices of medical services and goods;
changes in the size and age distribution of the population; and
changes in the composition of the services and goods provided, including changes in utilization.
They have estimated that the $110 billion increase in personal health care expenditures from FY 1950-FY 1976 can be broken down among the factors as follows: price increases, 54.6 percent; population change, 10.5 percent; and changes in the quantity and character of the health care patients receive, 34.9 percent. However, the relative influence of the factors has changed during different parts of that time period, as the following table demonstrates.
PERCENTAGE DISTRIBUTION OF SOURCES OF INCREASE IN PERSONAL
Source: Gibson, Robert M., and Mueller, Marjorie Smith.
Health Expenditures, Fiscal Year 1976." Social Security Bulletin, Vol. 40, No. 4, April, 1977.
Increases in the price of health care, as measured by the Consumer Price Index, have consistently exceeded price increases in the rest of the economy for decades. The only exception to this trend was during the Economic Stabilization Program, when medical care prices increased at lower rates than general price levels. Since these controls were lifted, medical care prices have again increased faster than all consumer prices. The following table summarizes the average annual increases in various components of the Consumer Price Index for FY 1960-1966 (pre-Medicare and pre-Medicaid), FY 1966-1971 (post-Medicare and post-Medicaid), the Economic Stabilization Program, and the post controls period.
1/ Annualized rate of change computed from January, 1972, rather than August, 1971.
Source: Social Security Administration.
Another indication of the increasing cost of health care is the cost data compiled by the American Hospital Association (AHA).
The AHA measures of average expense per patient day and per admission are derived by dividing total hospital expenses by the number of days of care or the number of admissions. Adjustments are then made to account for the volume of outpatient care provided, yielding measures of expense per adjusted patient day and expense per adjusted admission. A summary of these measures since 1965 is as follows.
COMMUNITY HOSPITAL EXPENSE PER ADJUSTED PATIENT DAY
Source: American Hospital Association, Hospital Statistics, 1976 Edition.