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1991.04.22 :  Health Care Expenditures

Contact:  Bob Hardy (202) 245-6145
April 22, 1991

       Preliminary estimates show that national health spending
in 1990 increased to 12.2 percent of gross national product, up
from 11.6 percent in 1989, according to information released
today by HHS Secretary Louis W. Sullivan, M.D.
       "Growth in health expenditures has increased faster than
GNP in all but three years since 1960," Secretary Sullivan said. 
"The growing share of economic resources absorbed by health care
is placing an increasing burden on other sectors of the economy."
       He released an article prepared for publication by
analysts in the Health Care Financing Administration.  The
analytical work shows that the health share of all national
spending increased significantly in 1990 because economic growth
was slowing while health expenditures continued to grow rapidly. 
The increase was 0.6 percentage points.  The average annual rate
of increase in the ratio through the past 30 years has been 0.2
percentage points.
       Historically, according to the analysts, sharp increases
in the share of economic resources consumed by health care have
generated policy initiatives to control expenditures.  For
example, the Prospective Payment System for Medicare hospital
payments was created by 1983 legislation after a large increase
in the ratio of health expenditures to GNP.

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       Secretary Sullivan said that "most people look with alarm
at spending increases like this.  They wonder whether the dollars
spent are producing value.  We need to assure that spending is
correlating with improvements in the health of the American
people and the quality of health care.
      "We are confronted with difficult policy choices," he said. 
"Our commitment to serving the health care needs of the American
people must be matched by determination to limit cost increases
to an acceptable range without compromising the quality of care."
       Gail R. Wilensky, Ph.D., administrator of the Health Care
Financing Administration, which administers the Medicare program
and the federal portion of the Medicaid program, said the agency
"is working to achieve maximum value for every dollar spent on
health care. We are promoting the use of coordinated care plans
such as HMOs, reforming payment systems, emphasizing cost-
effective medical technologies and procedures, and strengthening
our quality assurance activities."
       Preliminary indicators for 1990 show that national health
spending continued to increase at least as fast as the 11.1
percent rate of 1989, while the economy grew at less than half
that rate. The growth rate of national health expenditures
accelerated for three consecutive years from 1986 to 1989.

       The article prepared by HCFA analysts appeared in the
spring edition of Health Affairs, a quarterly journal published
by Project Hope.

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