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National Health Accounts: Definitions, Sources, and Methods Used in the NHE 2002

Introduction

U.S. National Health Accounts

Since 1964, the United States Department of Health and Human Services has published an annual series of statistics presenting total national health expenditures. The basic aim of these statistics, termed National Health Accounts (NHA), is to "identify all goods and services that can be characterized as relating to health care in the nation, and determine the amount of money used for the purchase of these goods and services...." (Rice et al, 1982).

The NHA are compatible with the National Income and Product Accounts (NIPA) generally, but bring a more complete picture of the health care sector of the nation's economy together in one set of statistics. Three primary characteristics of the NHA flow from this framework. First, the National Health Accounts are comprehensive because they contain within a unified structure all of the main components of the health care system. Second, the Accounts are multidimensional, encompassing not only expenditures for medical goods and services, but also the source of funds that finance the purchases. Third, the Accounts are consistent because they apply a common set of definitions that allow comparisons among categories and over time. Periodically, subsets of the NHA are estimated by state and by age cohorts to further the analytic dimensions of the statistics.

Table 1 provides an example of the accounting matrix used in the U.S. to classify health care spending. In 2002, $1.6 trillion was spent on health care services and products, over half of which purchased hospital care and physician and clinical services. Private expenditures totaled $839.6 billion, or 54.1 percent of all health spending. Private health insurance paid for 35.4 percent, out-of-pocket sources for 13.7 percent, and other private sources such as philanthropy for 5.0 percent. Government paid for the remaining 45.9 percent of spending, or $713.4 billion, through programs such as Medicaid and Medicare. The participation of government in financing health care varies by type of personal health expenditures, ranging from 6.5 percent of dental expenditures to more than half of expenditures for hospital, nursing home, home health and other personal health care services.

Health Accounts and the Health Economy

The NHA are a representation of the economic activity within the health sector of the national economy. The classifications used are those which are central to the financing and provision of health care. They form a system for understanding changes in the structure of the health sector, particularly changes in the amount and cost of health services purchased and in sources of financing for these purchases. Additionally, the NHA can serve as a database for researchers to study the economic causal factors at work in the health sector. They show at a minimum the following important relationships:

• Health care expenditures as a proportion of gross domestic product. The amount a nation chooses to spend on health care relative to the amount spent for all goods and services purchased represents a collective decision by the nation's citizens on the allocation of resources. The amount of economic resources devoted to the production of health care may preclude other societal options. This amount may be considered too large or too small, based on the amount of "health" actually purchased for the population, or it may be growing too rapidly or not quickly enough. The NHA make such issues explicit and quantitative.
• Expenditures by various sources of funds. The NHA bring into focus the share and magnitude of public and private financing for various types of health services. This allows consideration of the relative resources that should be spent from public and private sources, given their sources of revenue and competing priorities.
• Changes over time in sources of funds. The availability of a consistent series of accounts over time allows observation of changes in revenue sources. Many of these changes reflect basic technological, programmatic, and demographic trends. For example, the influence of the Medicare and Medicaid programs, legislated in 1965, in shifting funding to the public sector is discernable. Increases in the role of third party payment (public or private) over time may inflate medical care costs more quickly by weakening economic incentives associated with direct payment. Differential growth in public and private third party payments on a per enrollee basis may also alert users to reimbursement and access imbalances.
• Expenditures for various types of services. This describes the structure of the health care system by the amount spent in various health care establishments for services and products delivered each year. The Accounts provide data to evaluate how much is spent at medical establishments and provide data useful in analyzing the changing mix of medical services and products consumed in the United States.
• Changes over time in expenditures for types of services. Consideration of the entire matrix over time permits evaluation of policies intended to curb or redirect growth in the health care sector. Because we observe the system as a whole, it is possible to detect substitutions or countervailing effects in other services in response to changing funding sources. For example, the expansion of managed care to most workers and their families further constrained the growth of inpatient hospital services while increasing access to and expenditures for prescription drugs.
• Projections. Historical trends provide a basis for projections of what expenditures will be in the future. The projections incorporate assumptions about demographic and economic changes, as well as inflation rates and other variables. By projecting the likely consequences of current trends, these models alert us to undesirable outcomes and alternative policies to avoid them (Heffler et al., 2003).
• Specialized estimates. Specialized accounts fulfill a variety of informational needs. Health Spending by Age, (Keehan et al., 2004) let policymakers focus on the differential expenditure, use, access, and financing mechanisms available to various age groups. Health accounts by "final payer" array the burden of national health care costs by their ultimate sources of payment: Government, business, or households (Cowan et al., 2002). State level health accounts (Martin et al., 2001 and Martin et al., 2002) highlight regional differences in expenditures, service mix, and financing sources, and how these change over time.

Table 1: National Health Expenditures, by Source of Funds and Type of Expenditure: Calendar Year 2002

Amounts in Billions

¹Detailed estimates are made for these Federal Government programs: Medicare, Workers' Compensation, Medicaid, Department of Defense, Maternal and Child Health, Vocational Rehabilitation, Alcohol, Drug Abuse, and Mental Health Administration, Indian Health Service, State Children's Health Insurance Program, and miscellaneous general hospital and medical programs.

²Detailed estimates are made for these State and Local Government programs: Temporary Disability Program, Workers' Compensation, Medicaid, General Assistance, Maternal and Child Health, Vocational Rehabilitation, hospital subsidies, State Children's Health Insurance Program, and school health.

NOTE: Research and development expenditures of drug companies and other manufacturers and providers of medical equipment and supplies are excluded from research expenditures. These research expenditures are implicitly included in the expenditure class in which the product falls, in that they are covered in the final cost of that product. Numbers may not add to totals because of rounding.

SOURCE: Centers for Medicare & Medicaid Services, Office of the Actuary, National Health Statistics Group.