2012 health care spending, including administration

National Health Expenditure Projections: Modest Annual Growth Until Coverage Expands And Economic Growth Accelerates

By Sean P. Keehan, Gigi A. Cuckler, Andrea M. Sisko, Andrew J. Madison, Sheila D. Smith, Joseph M. Lizonitz, John A. Poisal and Christian J. Wolfe
Health Affairs, June 2012


$2,809.0 billion - NHE (National Health Expenditures)

$8,952.8 - NHE per capita

17.9% - NHE as percent of GDP

$37.5 billion - Government administration (Note d)

$162.6 billion - Net cost of health insurance (Note e)

d  Includes all administrative costs (federal, state, and local employees’ salaries; contracted employees, including fiscal intermediaries; rent and building costs; computer systems and programs; other materials and supplies; and other miscellaneous expenses) associated with insuring individuals enrolled in the following public health insurance programs: Medicare, Medicaid, Children’s Health Insurance Program, Department of Defense, Department of Veterans Affairs, Indian Health Service, workers’ compensation, maternal and child health, vocational rehabilitation, Substance Abuse and Mental Health Services Administration, and other federal programs.

e  Net cost of health insurance is calculated as the difference between calendar year premiums earned and benefits paid for private health insurance. This includes administrative costs and, in some cases, additions to reserves; rate credits and dividends; premium taxes; and plan profits or losses. Also included in this category is the difference between premiums earned and benefits paid for the private health insurance companies that insure the enrollees of the following public programs: Medicare, Medicaid, Children’s Health Insurance Program, and workers’ compensation (health portion only).


For 2011 through 2013, the lingering effects of the economic recession and modest recovery, mostly in the form of limited growth in incomes, are expected to continue to constrain health spending growth. In 2014 the coverage expansions laid out in the Affordable Care Act for Medicaid and for private health insurance are expected to increase the growth rate for health spending to 7.4 percent, with notable increases expected in spending on physician services and prescription drugs for newly insured patients. By the end of the projection period, higher income growth and the continuing shift of baby boomers into Medicare are expected to cause health spending to grow roughly two percentage points faster than overall economic growth, which is about the same differential experienced over the past thirty years.


By Don McCanne, MD

This is the annual report that is used most often as a resource for our health care spending.

The numbers to remember for 2012:

National Health Expenditures:  about $2.8 trillion

Health spending per capita:  about $9000

Spending as a percent of GDP:  about 18%

After the transitions of the next decade, health care spending is expected to continue to grow two percentage points faster than overall economic growth - the same differential experienced over the past thirty years. It makes you wonder when Herbert Stein's principle will kick in (essentially, if it can't go on, it won't).

Since we are seeing an increase in the political rhetoric divided over whether the government or markets should be the dominant force in health care financing, it is worthwhile looking at the total administrative costs of these two approaches to financing health care. Although government spending accounts for about half of all health care spending, we are paying private insurers more than four times as much in administrative costs and profits as we are spending on government administration of health insurance programs.

It is true that the net cost of private health insurance includes the administrative costs of private Medicare Advantage plans and private Medicaid and CHIP managed care plans, but this does not begin to account for the four fold differences in total administrative costs between public and private insurance.

Keep this in mind during the national debate over the Affordable Care Act this political season, which will continue to take place regardless of the Supreme Court decision. One side will argue that we need to encourage free markets of private plans plus private options for Medicare. The other side will argue that we need exchanges to provide choices of private plans, while continuing to offer private Medicare Advantage plans. The one side will talk about private markets while condemning the government, whereas the other side simply will avoid rhetoric referencing the government while touting the virtues of nominal ACA reforms of the private insurers. Both sides are wrong!

We need to get rid of the private insurers and switch to a publicly administered single payer national health program. Besides, then we can address more effectively our health care costs that continue to increase at a rate two percent above the growth in our economy - a rate that is intolerable when compounded year after year.