Inflation spurs health spending in 2000.

H ealth spending totaled $1.3 trillion in 2000, with spending averaging $4,637 per person (Exhibit 1). Nominal health care expenditures increased 6.9 percent in 2000, the third year of accelerating growth (Exhibit 2). The 1.2-percentage-point gain in the rate of spending growth in 2000 primarily reflects an increase in economywide inflation and a gain of only 0.3 percentage points in real spending. Spending growth in 1999 and 2000 slightly outpaced growth in gross domestic product (GDP), the first sign that the nine-year stability in health spending’s share of GDP may be coming to an end. The health spending share of GDP increased slightly, from 13.1 percent in 1999 to 13.2 percent in 2000. Available data for 2001 indicate that GDP growth decelerated as health care employment (Exhibit 3), medical inflation, and premium growth escalated. This suggests a stronger increase in the health spending share of GDP in the near future. Strong economic growth between 1997 and 2000 and the accompanying tight labor market caused those who are insured through employer-sponsored plans to choose less restrictive, more costly options. This resulted in faster growth in private health care spending than existed between 1993 and 1997, when cost containment strategies and increasing enrollment in managed care plans helped to dampen spending growth. Expanding budget surpluses supported federal policy initiatives that increased funding for Medicare. Congress passed two major pieces of legislation that added to Medicare funding in 2000: the Balanced Budget Refinement Act (BBRA) and the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act (BIPA). After the Balanced Budget Act (BBA) slowed Medicare spending growth to 0.6 percent in 1998 and 1.5 percent in 1999, the effects of the BBRA boosted Medicare spending to 5.6 percent in 2000. The full effects of BIPA will not be felt until 2002. Because spending for services in both the private and public sectors increased at similar rates in 2000 (6.9 and 7.0 percent, respectively), there was little change in the public share of health spending (Exhibit 4). Public spending in 2000 accounted for 45 percent of all national health expenditures, and private spending, the remainder.