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1991.01.09 :  Health Care Expenditures

Contact:  Bob Hardy (202) 245-6145
January 9, 1991

       The health care costs of business and government have been
growing faster than their resources for many years, according to
information released today by HHS Secretary Louis W. Sullivan, M.D.
       The study also shows that the income of households was
keeping pace with health care costs until the early 1980s.  Since
that time, health care expenditures have grown at a more rapid rate
than household income.
       Secretary Sullivan called the trends "a severe challenge to
policymakers as we face the growing demand for health care services
and the need to contain health care costs.  The ability of
business, government and households to meet other responsibilities
and needs is diminished when their health care costs are growing
faster than their financial resources."
       The information released today is from a report, "The Burden
of Health Care Costs: Business, Households and Government," that
will be published in the winter edition of Health Care Financing
Review, a quarterly journal of the Health Care Financing
Administration.
       The report traces health care spending by business,
government and households from 1965 through 1989, a period in which
an increasing proportion of health care costs were shifted from
households to business and government.

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       Households in 1965 paid 61 percent of national health care
expenses, a share that dropped to 37 percent in 1989.  However, the
business share of health care costs climbed from 17 to 30 percent
in the same period, and the government contribution increased from
21 to 31 percent.
       In recent years, the report states, some businesses have
experienced annual increases of 20 to 30 percent in the premiums
they pay for health insurance coverage of their employees.
       The report said that a rising number of retirees have been
promised health insurance benefits, and "the enormity of the future
burden this will place on business is only beginning to be
realized."
       Secretary Sullivan expressed concern about "the impact of
rapidly growing health care costs on the ability of American
business to grow and compete, nationally and internationally.
Potential economic effects must be an important consideration as we
plan new initiatives to ensure that all Americans have access to
health care services.

       "Government must provide leadership in promoting
cost-effective strategies for delivery of health care services,"
Secretary Sullivan said.

       Some of the strategies being pursued in Medicare and
Medicaid include furnishing better information to consumers for
informed decision-making, promoting use of coordinated care health
plans that avoid duplication of services and waste, and payment
reforms to encourage efficiency by health care providers, according
to Gail R. Wilensky, Ph.D., HCFA administrator.

       She said research to identify the most effective medical
technologies for diagnosing and treating illnesses and injuries
offers great promise for reducing unnecessary and wasteful
practices.

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       Household health care spending as a proportion of adjusted
gross income remained unchanged at about 4 percent from 1965 until
1980, then started moving upward to reach 5.1 percent of adjusted
personal income in 1989.

       Federal spending on health care was only 3.5 percent of
revenues in 1965, but reached 15.1 percent of federal revenues in
1989.  The Medicare program and the federal share of the Medicaid
program account for much of this rising claim on federal revenues.
Spending by state governments on health care, the single largest
cost being their Medicaid programs, increased from 7.5 percent of
state revenues in 1965 to 14.4 percent in 1989.

       Business spending on health care quadrupled as a percent of
gross domestic product from 1965 to 1989. (Gross domestic product
is the total value of goods and services produced in the United
States each year.)

       The amount of business spending on health care was equal to
the total amount of corporate after-tax profits in 1989.  Business
health care expenses equaled 14 percent of corporate after-tax
profits in 1965.

       Business spending on health care increased 12.3 percent in
1989; the growth rate of federal health care spending was 13.3
percent in that year, and the states spent 10.7 percent more than
in calendar year 1988. Household expenditures for health care grew
9.9 percent in 1989.


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