Current Spending Topics

Health Care Spending: 

1998, 2003, and 2008

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Consumer Expenditure Survey: 2008

U.S. Bureau of Labor Statistics August 2010 Volume 1, Number 8

How have rising health care costs affected 

household budgets? That question was 

raised many times before the passage of the 

Affordable Care Act, whose goal—as the act’s 

name implies—is to make health care more 

affordable for American families.1

 This analysis of Consumer Expenditure Survey (CE) 

data from the 1998, 2003, and 2008 Interview 

Surveys provides a picture of nominal out-ofpocket health care spending among households categorized by the age of the reference 

person.2 The expenses analyzed were total 

health care and its components: health insurance, medical services, prescription drugs, 

and medical supplies. Among the findings 

are the following:

•	 Among households nationwide with medical

expenses, the mean share of a household’s

total budget spent on health care was higher

in 2003 than in 1998 and was virtually

unchanged in 2008 compared with 2003.

•	 Households’spending changed over the

decade. In 2008, the mean share of medical

expenses that was spent on health insurance

was higher than in 1998, and the share

spent on medical services was lower. 

•	 Households whose reference person was

65 or older spent about twice as much of

their budget on health care compared with

the national average in all years studied. 

0

2

4

6

8

10

12

14

All 

consumer units

reporting 

expenses

Under 25 

years

25-34 years 35-44 years 45-54 years 55-64 years 65 years and 

older

1998 2003 2008

Chart 1. Average health care spending shares of total annual expenditures by age of 

reference person, Consumer Expenditure Interview Survey, 1998, 2003, 2008

SOURCE: U.S. Bureau of Labor Statistics

Percent value
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 C U R R E N T S P E N D I N G T O P I C S

For each year examined, the sample used for 

the study consisted of consumer units3

 who 

reported positive health care spending (net 

of any reimbursements) during an interview. 

This was done in order to focus solely on 

households with medical expenditures. Expenditure and income estimates presented 

for the collection year are annual estimates.

Findings4

For the sample as a whole, the proportion, 

or share, of total annual expenditures accounted for by health care went from 6.2 

percent in 1998 to 6.8 percent in 2003 and 

was about the same (6.7 percent) in 2008. 

Chart 1 shows that these averages differed 

among age groups. For example, among 

households with a reference person age 

25–34, health care accounted for 4.4 percent of annual expenditures in 1998, 4.6 

percent in 2003, and 4.8 percent in 2008. 

For households with a reference person 65 

or older, the share for health care was about 

twice as high as the national average for all 

households, and it went from 12.6 percent 

of annual expenditures in 1998 to 13.0 percent in 2003 but was about the same (12.9 

percent) in 2008.

The nature of households’ health care budgets changed between 1998 and 2008. The 

share accounted for by health insurance premiums increased while the shares accounted 

for by medical services and by medical supplies decreased. The share accounted for by 

prescription drugs increased between 1998 

and 2003 but was lower in 2008 than in 2003. 

(See chart 2 and table 1.)

0

10

20

30

40

50

60

1998 2003 2008

Medical services

Health insurance

Chart 2. Average health insurance and medical services shares of total health care

spending, Consumer Expenditure Interview Survey, 1998, 2003, 2008

SOURCE: U.S. Bureau of Labor Statistics

Percent value
3

Table 1. Health care expenditures and shares of health care expenditures, by age of reference 

person, Consumer Expenditure Interview Survey, 1998, 2003, and 2008

Item

All consumer units Under 25 25-34 35-44

1998 2003 2008 1998 2003 2008 1998 2003 2008 1998 2003 2008

Income before taxes $44,576 $54,949 $69,465 $22,118 $28,026 $39,415 $46,559 $56,182 $68,333 $55,180 $66,621 $86,709

Average annual 

expenditures $35,592 $42,435 $53,785 $22,210 $27,966 $36,467 $36,942 $42,664 $53,167 $42,689 $50,160 $64,195

Total health care $2,204 $2,882 $3,591 $922 $1,283 $1,449 $1,613 $1,953 $2,533 $1,975 $2,589 $3,022

Share of average

annual expenditures 

(in percent)

6.2 6.8 6.7 4.2 4.6 4.0 4.4 4.6 4.8 4.6 5.2 4.7

Health insurance $1,134 $1,563 $2,080 $442 $666 $856 $840 $1,151 $1,498 $1,012 $1,436 $1,730

Medical services 685 766 931 330 426 392 585 571 745 705 801 881

Prescription drugs 289 458 468 102 143 158 127 176 217 166 270 324

Medical supplies 96 95 113 48 48 43 62 54 73 91 82 87

Shares of total health 

care (in percent)

Health insurance 51.5 54.2 57.9 47.9 51.9 59.1 52.0 59.0 59.1 51.3 55.5 57.2

Medical services 31.1 26.6 25.9 35.8 33.2 27.0 36.3 29.2 29.4 35.7 30.9 29.2

Prescription drugs 13.1 15.9 13.0 11.0 11.1 10.9 7.8 9.0 8.6 8.4 10.4 10.7

Medical supplies 4.3 3.3 3.1 5.2 3.7 2.9 3.8 2.8 2.9 4.6 3.2 2.9

These changes differed among age groups. 

For the survey sample as a whole, health 

insurance premiums went from less than 

52 percent of health care outlays in 1998 to 

nearly 58 percent in 2008. Among households whose reference person was under 25, 

however, health insurance premiums were 

59.1 percent of health care spending in 2008, 

compared with 47.9 percent in 1998. For 

households whose reference person was 65 

or older, the proportion of the health care 

budget consisting of health insurance premiums was similar in 1998 and 2003 (56.0 

percent and 55.8 percent respectively), but 

was higher (63.5 percent) in 2008.

For the sample as a whole, medical services 

accounted for 31.1 percent of health care 

outlays in 1998 compared with 25.9 percent 

in 2008. The greatest declines in the share 

 C U R R E N T S P E N D I N G T O P I C S
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Table 1. Continued–Health care expenditures and shares of health care expenditures, by age 

of reference person, Consumer Expenditure Interview Survey, 1998, 2003, and 2008

Item

45-54 55-64 65 and older

1998 2003 2008 1998 2003 2008 1998 2003 2008

Income before taxes $62,178 $72,653 $88,961 $45,288 $60,415 $75,422 $24,095 $30,420 $39,683

Average annual expenditures $45,492 $52,952 $64,746 $36,578 $44,844 $57,654 $22,363 $27,848 $36,178

Total health care $2,323 $2,900 $3,442 $2,411 $3,382 $4,204 $2,812 $3,624 $4,658

Share of average annual

expenditures (in percent) 5.1 5.5 5.3 6.6 7.5 7.3 12.6 13.0 12.9

Health insurance $1,088 $1,443 $1,837 $1,164 $1,798 $2,268 $1,574 $2,020 $2,956

Medical services 879 912 1,056 787 898 1,175 587 707 866

Prescription drugs 241 426 419 361 577 632 537 788 697

Medical supplies 114 120 130 98 109 129 114 108 140

Shares of total health care

(in percent)

Health insurance 46.8 49.7 53.4 48.3 53.2 54.0 56.0 55.8 63.5

Medical services 37.8 31.4 30.7 32.6 26.6 27.9 20.9 19.5 18.6

Prescription drugs 10.4 14.7 12.2 15.0 17.1 15.0 19.1 21.7 15.0

Medical supplies 4.9 4.1 3.8 4.1 3.2 3.1 4.1 3.0 3.0

of health care expenses accounted for by 

medical services were for groups made up of 

households with a reference person under 

age 55. One reason for that may be increased 

enrollment in managed care plans such as 

HMOs (health maintenance organizations) 

and PPOs (preferred provider organizations), 

which tend to have lower out-of-pocket costs 

than the more traditional fee-for-service 

plans. Additional analysis of households with 

private (non-Medicare) health insurance 

policies shows that, in 1998, 79.4 percent 

of households whose reference person was 

under age 55 reported belonging to a managed care plan, compared with 20.6 percent 

in fee-for-service plans; in 2008, these proportions were 86.5 percent and 13.5 percent, 

respectively.

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Prescription drug spending went from 13.1 

percent of health care outlays in 1998 to 15.9 

percent in 2003, with all age groups experiencing increases. Between 2003 and 2008, 

overall prescription drug spending decreased 

to 13.0 percent of health care outlays, with 

all groups, except the group with a reference 

person age 35–44, experiencing declines. 

The greatest decline was for the 65-and-older 

group; a likely reason for this finding is the 

introduction of Medicare Part D, the prescription drug benefit program, in 2006.

Conclusions

For those households with net positive 

health care spending, the proportion of annual spending accounted for by health care 

was higher in 2003 than in 1998, and it was 

about the same in 2008 compared with 2003. 

Whether spending will remain fairly stable 

during the next few years is especially uncertain because of the recession that began in 

December 2007. If poor economic conditions 

suppressed health care spending in 2008, then 

increased health care outlays relative to total 

consumption expenses could appear in the 

future as the economy recovers.5

 Adding to the 

uncertainty is the question of how the Affordable Care Act passed in 2010 will affect health 

care costs for American families.

Questions? Please contact the Consumer

Expenditure Survey program at 

cexinfo@bls.gov or (202) 691-6900.

Notes

1

 For more information, see Health Reform for American Families (The White House), on the Internet at http://www.whitehouse.

gov/files/documents/health_reform_for_american_families.pdf (visited July 6, 2010).

2

 The reference person is the first household member mentioned by the respondent when he or she is asked to “start with the name of 

the person or one of the persons who owns or rents the home.” 

3

 A consumer unit is defined as (1) all members of a particular household who are related by blood, marriage, adoption, or other legal 

arrangement, such as one that involves foster children; (2) a financially independent person living alone, sharing a housing unit with 

others, or living as a roomer in a private home, in a lodging house, or permanently in a hotel or motel; or (3) two or more persons 

living together who pool their incomes to make joint expenditures. For more information, see “Consumer Expenditures and Income,” 

BLS Handbook of Methods, Chapter 16 (Updated April 2007), on the Internet at http://www.bls.gov/opub/hom/pdf/homch16.pdf

(visited July 22, 2010). Although “consumer unit” is the proper technical term for the purposes of the Consumer Expenditure Survey, 

it is often used interchangeably with “household.” Because the word household is more familiar to most people, it is used as a substitute for consumer unit in most of this article.

4

 The findings of this study differ from those reported in the CE tables that are available on the BLS Web site http://www.bls.gov/

cex. One reason for the differences is that the published tables report integrated data from the Diary and Interview Surveys, whereas 

this study uses Interview Survey data only. Nonprescription drugs, nonprescription vitamins, topicals and dressings, and medical 

equipment repair are not included in this survey because they are collected from Diary Survey respondents only. In addition, the 

averages shown in the published tables are for all respondents, whether they incurred health care expenses or not, whereas the averages in this report are only for households with expenses, net of any reimbursement. In 1998, 80.4 percent of all Interview Survey 

respondents reported health care expenses, compared with 78.6 percent in 2003 and 77.7 percent in 2008.

The research in this article summarizes a more detailed analysis that will appear in the Consumer Expenditure Survey Anthology, 

2010 (Bureau of Labor Statistics, forthcoming). Diary Survey data were not used because they do not provide information about 

private health insurance, Medicare, and Medicaid coverage of consumer unit members; this coverage information is essential to the 

forthcoming analysis.

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 The National Bureau of Economic Research (NBER) has designated December 2007 as the beginning of the latest recession, but it 

has not determined its end. For more information, see Statement of the NBER Business Cycle Dating Committee on the Determination of the Dates of Turning Points in the U.S. Economy (Cambridge, National Bureau of Economic Research), on the Internet at 

http://www.nber.org/cycles/general_statement.html (visited July 6, 2010).

A recent National Health Expenditure Accounts report indicated that the nominal increase in households’ out-of-pocket health care 

spending (which excludes insurance premiums and contributions to Medicare) decelerated from 6 percent in 2007 to 2.8 percent 

in 2008. It was concluded that the slower growth may have occurred because poor economic conditions forced households to keep 

health care spending under control by forgoing treatment. For more information, see Sponsors of Health Care Costs: Business, 

Households, and Governments, 1987–2008 (Baltimore, Centers for Medicare and Medicaid Services), on the Internet at http://www.

cms.hhs.gov/NationalHealthExpendData/downloads/bhg08.pdf (visited July 6, 2010).

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