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How did the COVID-19 pandemic affect healthcare spending?

By Grace Hill

Starting in March 2020, U.S. consumers experienced major changes in the economy as the nation tried to contain the spread of COVID-19. Government lockdown orders affected consumer healthcare spending behavior in many ways. Lockdowns reduced the availability of in-person medical services; prompted changes in employment status, leading to health insurance adjustments; and forced many elective surgeries to be postponed.¹ According to the Bureau of Labor Statistics (BLS) Consumer Expenditure Surveys (CE), average annual healthcare spending was $5,177 in 2020, slightly lower than it was in 2019 ($5,193). This marked the first decline in annual healthcare expenditures in a quarter of a century.² By 2021, average healthcare spending rebounded to $5,452, a 5.3-percent increase from 2020 and a 5.0-percent increase from 2019. Many factors, such as the introduction of COVID-19 vaccinations, the widespread adoption of telehealth appointments, and the easing of lockdown restrictions in 2021, contributed to a recovery in healthcare spending.³

This Beyond the Numbers article explores changes in consumer healthcare spending components before and during the onset of the COVID-19 pandemic by income, age, and family composition. This article updates a previous BTN publication, How have healthcare expenditures changed? Evidence from the Consumer Expenditure Surveys, by Lekhnath Chalise, which covered healthcare spending from 2004 to 2018.

Healthcare spending levels

The severity of the COVID-19 pandemic health crisis makes for an interesting opportunity to see how consumers allocate healthcare spending during a period of health-related uncertainty. For example, one can compare year-to-year dollar amounts spent on healthcare and its components to see how these expenditures changed in response to the pandemic. Based on the data, healthcare spending was indeed affected by the pandemic.

In 2019, the average consumer unit spent $5,193 on healthcare.⁴ In 2020, the year of pandemic onset, consumers spent slightly less on healthcare ($5,177). By 2021, healthcare expenditures increased to $5,452—5.0 percent higher than they were in 2019. But given that the pandemic affected more aspects of daily life than healthcare, are these changes unusual in any way? To provide context, consider the percent changes in healthcare expenditures in this period compared with the percent changes in all expenditures other than healthcare. (See table 1.)

 Table 1. Consumer Expenditure Surveys, 2019–21

Item	Annual 2019	Annual 2020	Annual 2021	Percent changes
				2019–20	2020–21	2019–21
Average annual expenditures	$63,036	$61,332	$66,928	-2.7	9.1	6.2
Average annual expenditures less healthcare	57,843	56,155	61,476	-2.9	9.5	6.3
Healthcare	5,193	5,177	5,452	-0.3	5.3	5.0
Health insurance	3,529	3,667	3,704	3.9	1.0	5.0
Medical services	984	864	1,070	-12.2	23.8	8.7
Drugs	486	476	498	-2.1	4.6	2.5
Medical supplies	194	170	181	-12.4	6.5	-6.7
Source: U.S. Bureau of Labor Statistics.

Overall, healthcare expenditures decreased 0.3 percent in 2020, before rising 5.3 percent in 2021 (5.0 percent higher than in 2019). In contrast, in 2020, all expenditures less healthcare fell 2.9 percent from 2019 ($57,843 to $56,155), before rebounding 9.5 percent in 2021 ($61,476), 6.3 percent higher than in 2019.

The lower volatility of healthcare expenditures may be due to the necessity of some healthcare expenditures in the face of a crisis. That is, while some healthcare expenditures can be avoided in a crisis like a pandemic (like an annual physical exam for a young person who has enjoyed good health), others cannot, whether for conditions that are acute (like an ear infection) or chronic (like severe arthritis).

The changes in components of healthcare are consistent with this idea. In the CE, the four components of healthcare include health insurance and three categories that maintain or improve health: medical services, drugs, and medical supplies. Of these, only health insurance expenditures rose because, presumably, pandemic or not, consumers are willing to pay a monthly premium to protect against the possibility of incurring a much larger expense (like emergency treatment).

At the same time, both medical services and supplies exhibited the largest declines in the onset of the pandemic, each falling more than 12 percent from 2019 to 2020. These items also had the largest rebounds in 2021. Medical services are especially noticeable, with an increase of nearly 24 percent. These results are consistent with the idea that COVID-19 related restrictions and precautions discouraged or prevented many consumers from nonemergency, in-person doctor visits, surgeries, medical tests, etc. Nevertheless, many medical services were adapted for the pandemic.

The use of telemedicine replaced some in-person visits, mitigating the drop in spending from the pandemic. Furthermore, COVID-related surcharges during urgent visits that could not be delayed or handled remotely, such as emergency dental work, may have further stemmed the drop in 2020 medical services spending. Businesses applied these surcharges due to personal risk to their healthcare providers and the need for additional cleaning supplies, no-contact thermometers, and personal protection equipment.⁵ Regardless, the drop in expenditures indicates that consumers likely still went without many medical services they would have purchased in the absence of the pandemic.

As state and local governments started rolling back restrictions on personal visits in 2021, both medical services and medical supplies expenditures rebounded. For medical services, 2021 expenditures exceeded 2019 levels. For medical supplies, the 2021 level ($181) was only about half-way between 2019 ($194) and 2020 ($170). For drugs, from 2019 ($486) to 2020 ($476) there was a small drop in drug expenditures, before a rebound in 2021 ($498).

Healthcare spending shares

Expenditure shares are important for many reasons. One is to show the relative importance of specific expenditures within a consumer unit’s total expenditures. Despite overall changes in both healthcare and other expenditures levels, healthcare expenditures maintained their importance in each year from 2019 to 2021, accounting for about 1 in 12 dollars spent (8.1 to 8.4 percent) during the period. Healthcare expenditures peaked at 8.4 percent in 2020, a share not substantially different than those observed before the pandemic (8.2 percent in 2019) or as the pandemic continued (8.1 percent in 2021). As shown in tables 2A and 2B, after peaking in 2020, the share of healthcare expenditures fell at a slower rate than non-healthcare expenditures. (See tables 2A and 2B.) Among non-healthcare expenditures, there is considerable variation in shares of total expenditures.

 Table 2A. Expenditure levels, Consumer Expenditure Surveys, 2019–21

Item	Annual 2019	Annual 2020	Annual 2021	Percent changes
				2019–20	2020–21	2019–21
	Average annual expenditures	$63,036	$61,332	$66,928	-2.7	9.1	6.2
Food at home	4,643	4,935	5,259	6.3	6.6	13.3
Housing	20,679	21,417	22,624	3.6	5.6	9.4
Apparel and services	1,883	1,434	1,754	-23.8	22.3	-6.9
Healthcare	5,193	5,177	5,452	-0.3	5.3	5.0
Source: U.S. Bureau of Labor Statistics.

 Table 2B. Expenditure shares, Consumer Expenditure Surveys, 2019–21

Item	Annual 2019	Annual 2020	Annual 2021
	Average annual expenditures	$63,036	$61,332	$66,928
Food at home	7.4	8.0	7.9
Housing	32.8	34.9	33.8
Apparel and services	3.0	2.3	2.6
Healthcare	8.2	8.4	8.1
Source: U.S. Bureau of Labor Statistics.

Shares of total consumer unit expenditures

As shown in tables 2A and 2B, healthcare expenditures accounted for slightly larger shares of total expenditures in each year than food at home (mainly food from grocery stores) and about two to three times the share spent on apparel and services, but only one-fourth of the share allocated to total housing.⁶

Solely analyzing total healthcare expenditures may mask important outcomes. As shown earlier, levels of expenditures for the four components experienced different patterns of change. Examining shares of the subcomponents of healthcare shows their relative importance in total healthcare spending each year.

Shares of healthcare expenditures

In 2019, total healthcare expenditures were $5,193. From 2019 to 2020, health insurance expenditures rose 3.6 percent, while expenditures in medical services, drugs, and medical supplies fell by 12.2 percent, 2.1 percent, and 12.4 percent, respectively.⁷ (See table 1.) As shown in chart 1, health insurance accounted for the largest share of healthcare expenditures, making up about 68 percent of healthcare spending in 2019 and 2021, and about 71 percent in 2020.

This increase is due more to the sharp decline in other healthcare expenditures in that year than to the increase in health insurance expenditures. Similarly, the return to a 68-percent share in 2021 is due to the sharper increases in non-insurance healthcare expenditures in 2021 than the mild increase in insurance expenditures in that year. The general purpose of insurance explains the large spending share. Providers pay for a portion of health-related expenses, particularly for large medical costs, thus reducing or replacing expenditures for other components of healthcare (such as medical services) that the consumer would otherwise pay.

Like with the medical services spending level before and during the pandemic, medical services' share of healthcare expenditures saw an initial dip in 2020, followed by a small resurgence in 2021. (See chart 1.) From 2019 to 2021, medical services' share of healthcare spending increased by 0.7 percentage points, more than the 0.3- and 0.4-percentage points decreases in the shares held by drugs and medical supplies, respectively. Presumably, this is because the lifting of COVID-19 restrictions had a greater effect on the availability of medical services than on drugs or medical supplies, both of which were available during the pandemic.

Spending on drugs (including nonprescription and prescription drugs) and spending on medical supplies (such as bandages or eyeglasses) both had changes of less than $30 over the 3-year period, meaning the share was small and stable. (See table 1.) Over the 3-year period, drugs’ share of healthcare expenditures only ranged from 3.3 percent (2020 and 2021) to 3.7 percent (2019).

While important to understand, overall component spending does not tell the whole story of healthcare expenditure changes before and during the pandemic. The following sections examine healthcare expenditures by demographic groups in detail.

Healthcare expenditures by income quintile

Purchasing power increases with income. Therefore, it is reasonable to expect that for most goods and services, those with higher income spend more. Healthcare is no exception. (See chart 2.)

The onset of the pandemic may have affected all consumers in similar ways, such as delaying nonemergency medical visits. However, even if the higher income consumers cut their medical expenditures by a larger percentage, one would expect those with higher incomes to spend more than those with lower incomes, before and after the onset of the pandemic.

Between 2019 and 2020, healthcare spending by consumer units in the highest income quintile decreased, while healthcare spending for those in the second, third, and fourth income quintiles increased. (See chart 3.) Even with the reduction in healthcare spending of 5.8 percent in 2020 (down to $7,931), consumer units in the highest income quintile still outspent those in all other income quintiles. While consumer units in the third quintile had the largest percent increase in overall healthcare spending in 2020 (up 5.8 percent to $4,964), only the second and fourth income quintiles saw spending levels consistently increase in the 2019–21 period.

 

Changes in income quintile spending by healthcare components

As shown in chart 3, for those in the highest income quintile, healthcare spending fell by 5.8 percent in 2020, despite a 0.4-percent increase in drug expenditures. Chiefly responsible was an 18.6-percent decline in spending on medical services, and a 16.1-percent decline in spending on medical supplies. (See chart 3.) Of that 18.6-percent decline ($336) in medical services spending, the largest contributors were a 39-percent decrease ($131) in dental services spending and a 25.3-percent decrease ($85) in physician's services spending.⁸

In contrast to those in the highest income quintile, those in the third quintile increased their spending by 5.8 percent in 2020. (See chart 3.) This was likely driven by a 9.6-percent increase in health insurance expenditures. Because health insurance is the largest component of healthcare spending, regardless of quintile (71.9 percent in 2020 for this group), the increase in health insurance expenditures offset the declines in all other components, leading to an overall increase in healthcare spending for the third quintile.

The highest and lowest income quintiles exhibited the largest spending changes from 2020 to 2021. (See chart 4.) Despite the relatively small percent changes, health insurance is the largest healthcare spending component, and therefore has a larger influence on total healthcare spending than other healthcare components in chart 4.

From 2020 to 2021, the increase in health insurance expenditures for four of the quintiles is puzzling given that many factors not collected in CE would lead one to expect a decrease. For instance, many workers receive health insurance benefits as part of their compensation, making health insurance spending affected by employment status.⁹ Thus, as 2021 brought greater stability in employment (perhaps related to greater COVID-19 prevention and treatment), consumers in those quintiles may have paid less for health insurance. At the same time, some providers of government sponsored health insurance offered lower premium costs and expanded coverage in 2021 and 2022.¹⁰ In addition, government health insurance programs for low-income earners (Medicaid) and senior citizens (Medicare) expanded coverage in 2020 to include reduced costs for COVID-19-related healthcare.¹¹ Interestingly, of all the income quintiles, the third income quintile was the only group to see a decrease in their healthcare expenditures in 2021.

Health expenditures by age

Older consumers are more vulnerable to health problems than younger consumers. This includes both increased risk of becoming ill (incidence of certain conditions increases with age) and increased difficulty in treating certain conditions when they occur (for instance, the risk of negative outcomes from surgery are higher for older persons). Presumably, these concerns are intensified during a health crisis, like the COVID-19 pandemic. To see how patterns changed (or not) during the pandemic, it is useful to examine expenditures by age of the reference person (the first person mentioned when the respondent is asked who is responsible for owning or renting this home).¹²

Percent change in healthcare expenditures by age, 2019–20

As seen in chart 5, consumer units whose reference person was age 65 or older had the smallest decline in 2020 healthcare spending (2.4 percent). In contrast, the largest drop in healthcare spending in 2020 was for consumer units with reference persons under 25 years old (10.6 percent).

While both age groups reduced their spending on medical services, reference persons age 65 and older slightly increased their spending on health insurance (2.2 percent), partially offsetting declines in spending on medical services, drugs, and medical supplies. (See chart 5.) On the other hand, due to the relatively small share of healthcare spending on medical supplies for those under age 25 ($251 out of a total $6,668 for all healthcare in 2020), the 55.6-percent increase in spending in that component was not large enough to offset decreases in the other components.

The only age groups to increase overall healthcare spending in 2020 were the 25–34- and 45–54-years age groups. (See chart 5). These age groups had the largest increases in health insurance expenditures: the largest component in healthcare spending. In addition, due to an increase in eyecare services ($52), consumer units with reference persons age 45–54 was the only age group to spend more on medical services in 2020 ($65).¹³

Percent change in healthcare expenditures by age, 2020–21

In 2020–21, every age group increased its healthcare expenditures. (See chart 6.) Age groups varied in their component spending, but all increased spending on medical services. Consumer units with reference persons aged 35–44 had the largest increase in overall healthcare spending (12.3 percent). (See chart 6.) Chart 6 shows that this group had a 62.2-percent increase in spending on medical services (also the largest of any age group) and increases in expenditures on medical supplies and drugs as well. The $531-increase in medical services spending by the 35- to 44-years-old age group was driven mainly by increases in physician’s services (a $205 increase) and hospital room and services (a $157 increase).¹⁴

The under 25 group had the smallest increase in 2021. While increasing expenditures on medical services and drugs, this age group cut spending on medical supplies and health insurance, leading to a smaller overall increase in healthcare spending. (See chart 6.) In both 2020 and 2021, this group reduced expenditures on health insurance. This is in line with the assumptions of age-based patterns in healthcare purchases. Usually, younger consumers are healthier and have lower incomes, making them more willing to take on the risk of having to pay more out-of-pocket costs and/or seek out lower cost insurance plans that may have less choice in healthcare providers, less coverage, or higher deductibles.

Healthcare expenditures by family composition

Healthcare expenditures vary by family composition, even when family size is the same. Needs, and therefore expenditures, vary for consumer units consisting only of a single parent with a young child, a married couple, or two unmarried partners. In addition, changes in levels across years may differ by family composition. For example, chart 7 shows that, from 2019 to 2020, consumer units with at least one child increased healthcare expenditures, while consumer units with only adults decreased healthcare expenditures.

Among consumer unit types, single parents reduced all healthcare expenditures except for health insurance, which grew a substantial 24.3 percent. In the same period, married couples with children modestly increased their spending in every healthcare component (2 to 4 percent) except drugs (over 7 percent). (See chart 8.) General COVID-19 uncertainty and changes in daily routines could have made parents less willing to take risks regarding their children’s health,¹⁵ causing them to increase health insurance spending. Still, this could also be explained by rising health insurance premium costs in 2020.¹⁶

In 2021, healthcare spending increased for every family type except for married-parent consumer units whose oldest child is under 6 years old, who decreased their healthcare spending by 1.5 percent. (See chart 7.) Unlike other consumer units, this type of consumer unit did not experience a surge in medical services expenditures in 2021. Instead, this group decreased medical services spending by 9.0 percent and their health insurance spending by 3.1 percent. (See chart 9.) Despite nearly 40-percent increases in both drugs and medical supplies spending, overall healthcare expenditures still fell for this group (1.5 percent).

New vaccines in 2021 allowed for a return to in-person medical visits for adults but not for children, who were unable to get vaccinated as quickly as adults. Children under 5 years old were the last age group for whom vaccines were available.¹⁷ It is likely that the decreased risk of illness for adults and older children restored consumer confidence in safely receiving medical services in-person.¹⁸ Similarly, the delay in availability of COVID-19 vaccines for younger children could explain the decrease in healthcare spending for married couples with children under 6.

Summary

Changes between 2019 and 2020 provide insight into how pandemic-related lockdowns and precautions affected healthcare spending. Health insurance is the largest component of healthcare spending and can be influenced by lower willingness to take healthcare-related risks, changes in employment, and program costs. Decreased spending on medical services reflects consumer preferences to avoid COVID-19 exposure through in-person healthcare visits and lessened availability of nonemergency medical services.

Comparing healthcare spending by income quintile from 2019 to 2020 shows that the largest changes were by the highest and third quintiles. These changes were driven by decreased medical spending for the highest quintile and increased health insurance spending for the third quintile. At the same time, those in the 25–34- and 45–54-years age groups spent more on healthcare in 2020 than in 2019. While there were substantial increases in health insurance spending in both single parent families and married couples with children, single parent families increased their medical services spending much more than married couples with children.

Changes between 2020 and 2021 reflect consumer spending patterns as lockdown restrictions were lifted, vaccinations became available, and uncertainty decreased. Most notably, spending on medical services increased as in-person visits became safer. The highest and lowest income quintiles had the largest percent changes from 2020 to 2021, but every income and age group increased their medical services spending, as did all family types except married couples with children under 6 (presumably due to delayed vaccine approval for children under age 5).

Healthcare expenditures reveal the costs to consumers of improving their health. What that health looks like is different for everyone but can be influenced by the same events. The COVID-19 pandemic was, and continues to be, a major health crisis, and the CE data show how consumer units reacted by changing their healthcare spending to adapt to new challenges.

This Beyond the Numbers article was prepared by Grace Hill, an economist in the Office of Prices and Living Conditions, U.S. Bureau of Labor Statistics. Email: hill.grace@bls.gov; Telephone: 202-691-6900.

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