A Century of Health Care Spending

Health care spending increased rapidly during the second half of the 20th century.

Chart 2.41: Health Care Spending in 20th Century

Health care spending started out at the beginning of the 20th century at 0.25 percent of Gross Domestic Product (GDP). It increased slowly during the first half of the century, peaking at one percent of GDP in 1933 and then declining to 0.38 percent of GDP in World War II. It took until 1961 for health care spending to return to 1 percent of GDP.

Following the passage of Medicare (a federal program for 65-year-olds and over) and Medicaid (a federal-state program for the poor) health care spending increased rapidly, reaching 2 percent of GDP in 1970 and 3 percent in 1980.

The increase in health care spending moderated in the 1980s, but still breached 4 percent of GDP in 1990 and then increased rapidly in the early 1990s, reaching 5 percent of GDP in 1993 and peaking at 5.3 percent GDP in 1995. Health care spending decreased slightly in the late 1990s, down to 5 percent of GDP in 2000. Rapid growth in health care spending resumed in the 2000s, reaching 6 percent of GDP in 2005 and 7 percent of GDP in 2009. In 2016 health care broke through 8 percent of GDP for the first time, but is expected to remain at 8 percent GDP through 2020.

Government Healthcare Before Medicare

Government provided modest amounts of health care in the first half of the 20th Century.

Chart 2.42: Health Care Spending Before Medicare

Health care spending at the start of the 20th century was a state and local affair. State governments spent about 0.13 percent of GDP on health care and local governments about 0.12 percent of GDP.

After a dip in World War I, health care spending jumped to about 0.5 percent of GDP with state and local governments each spending 0.2 percent of GDP and the federal government spending about 0.1 percent of GDP.

Health care spending surged in the early Great Depression with federal spending doubling to 0.22 percent of GDP, state spending increasing to 0.37 percent and local spending increasing to 0.41 percent of GDP in 1932.

Chart Key:
- Local direct spending
- State direct spending
- Federal direct spending
- Transfer to state and local

Health care spending declined throughout the rest of the 1930s and World War II, with the federal share declining to 0.09 percent, state 0.15 percent and local 0.14 percent of GDP in 1944. Spending climbed rapidly immediately after World War II with federal health care spending reaching 0.32 percent, state spending 0.32 percent, and local spending 0.27 percent of GDP in 1950.

Health care spending grew slower than GDP in the early 1950s but resumed growth in the late 1950s, with federal health care spending reaching 0.26 percent, state health care spending reaching 0.35 percent and local health care spending reaching 0.35 percent of GDP in 1959.

Government Healthcare in the Medicare-Medicaid Age

Medicare and Medicaid have made health care into the biggest government function in the United States.

Chart 2.43: Health Care Spending by Government Level

Health care spending in the mid 1960s consumed about 1 percent of GDP. The federal government spent about 0.24 percent of GDP, state governments spend about 0.4 percent of GDP, and local government about 0.36 percent of GDP. In 1965 Congress passed Medicare, the federal health care program for Americans over 65 years old, and Medicaid, the joint federal-state health care program for the poor, and ever since health care spending has consistently grown much faster than GDP.

Chart Key:
- Local direct spending
- State direct spending
- Federal direct spending
- Transfer to state and local

The year that Medicare and Medicaid were passed, government health care spending at the three levels of government was: federal 0.24 percent GDP; state 0.4 percent GDP; local 0.36 percent GDP; about one percent of GDP overall. By 1970 the total health care spending had doubled to 2 percent of GDP, with federal 1.13 percent GDP including 0.25 percent GDP transferred to the states, state 0.70 percent GDP, local 0.45 percent GDP.

In 1980 the total spending on health care reached 3 percent of GDP, with federal at 1.93 percent GDP (with 0.5 percent GDP transferred to states); states at 1.02 percent GDP, and local at 0.59 percent GDP. By 1990 total health care spending reached 4 percent of GDP, with federal at 2.61 percent GDP (with 0.8 percent GDP transferred to states); states at 1.28 percent GDP, and local at 0.65 percent GDP.

In 2000 the total spending on health care reached 5 percent of GDP, with federal at 3.42 percent GDP (with 1.22 percent GDP transferred to states); states at 2.05 percent GDP, and local at 0.68 percent GDP. By 2010 total spending on health care reached 7 percent of GDP, with federal at 5.5 percent GDP (with 1.95 percent GDP transferred to states); states at 2.9 percent GDP, and local at 0.87 percent GDP.

In the 2010s the increase in health care spending continued, with federal spending for 2015 at 5.7 percent of GDP (with 2.03 percent transferred to states); states at 3.4 percent GDP, and local declining to 0.85 percent GDP. By 2020, federal health care spending is expected at 6.0 percent of GDP (with 2.2 percent transferred to states); states at 3.5 percent and local at 0.8 percent of GDP.