Health care costs in the United States have grown substantially for decades and are expected to continue to grow in the future. For the federal government, rising health care costs constitute the principal challenge of fiscal policy–no other single factor will exert more influence over the long-term balance of the federal budget. The effects of rising health care costs are not limited to public programs, however. Private payers have experienced similar growth in costs.

This Congressional Budget Office (CBO) paper–written at the request of the Chairman of the Senate Committee on the Budget–describes the historical growth in spending on health care in the United States. It examines the factors that determine health care spending and how they have contributed to spending growth over time. Special emphasis is given to the largest single factor driving spending growth–the greatly expanded capabilities of medicine brought about by technological advances in medical science over the past several decades. Finally, the paper discusses the implications of continued technological change for future growth of health care spending.