January 6th, 2014
A new analysis from the Office of the Actuary at the Centers for Medicare and Medicaid Services (CMS), released today in the January 2014 issue of Health Affairs (more on the issue here), estimates that health care spending in the United States grew at a rate of 3.7 percent in 2012 to $2.8 trillion. That level of annual growth is similar to spending growth rates since 2009, which increased between 3.6 percent and 3.8 percent annually. This means that growth during all four years has occurred at the slowest rates ever recorded in the fifty-three-year history of the National Health Expenditure Accounts.
Total health care spending in 2012 grew more slowly than did the gross domestic product (GDP), which means that the share of the economy devoted to health care fell slightly from its 2011 level of 17.3 percent to 17.2 percent in 2012 (these shares reflect a large upward revision to the GDP in July 2013 that caused a corresponding downward revision to the health spending proportion of GDP). Faster growth among some services was partially offset by slower growth in other areas, said Anne B. Martin, an economist in the Office of the Actuary at CMS and lead author of the Health Affairs article.
“The low rates of national health spending growth and relative stability since 2009 primarily reflect the lagged impacts of the recent severe economic recession,” Martin said. “Additionally, 2012 was impacted by the mostly one-time effects of a large number of blockbuster prescription drugs losing patent protection and a Medicare payment reduction to skilled nursing facilities.”
Personal health care spending (health care goods and services), which accounted for 85 percent of total national health spending, increased by 3.9 percent in 2012, 0.4 percentage points faster than in 2011. This uptick in growth was influenced primarily by faster growth in hospital and physician and clinical services. Partially offsetting this acceleration was slower growth in spending for prescription drugs and nursing home care. Spending growth trends among health care payers varied as well in 2012. Medicaid and out-of-pocket spending grew faster in 2012 than in 2011, but growth in private health insurance and Medicare spending was slightly slower.
Although the Affordable Care Act had a minimal impact on aggregate health spending through 2012, several provisions continued to affect certain subcomponents of national health expenditures, such as increased Medicaid rebates for prescription drugs, the Medicare drug coverage gap (“donut hole”) discount program, coverage for dependents under age twenty-six, and the minimum medical loss ratio provision (which requires insurers to spend a minimum percentage of premium revenue on medical claims and health care quality improvements).
Major areas where spending growth accelerated in 2012 (over 2011) included:
- Hospital spending (4.9 percent)—reached $882.3 billion in 2012, an increase of 1.5 percentage points over the 2011 growth rate due to faster growth in both price and nonprice factors. Price growth (as measured by the Producer Price Index for hospital services) picked up slightly in 2012 to 2.5 percent, compared to 2.1 percent a year earlier. Nonprice factors, which include use and intensity of services, also grew faster than in 2011.
- Physician and clinical services (4.6 percent)—growth increased from 4.1 percent in 2011 to reach $565.0 billion in 2012 due primarily to increased growth in nonprice factors, such as the use and complexity or intensity of services. Physician services, which accounted for 80 percent of this spending, grew by 4.0 percent in 2012, up from 3.5 percent growth in 2011.
- Medicaid expenditures (3.3 percent)—growth increased from 2.4 percent in 2011 to reach $421.2 billion in 2012. Nevertheless, these were the two slowest annual rates of growth in the history of Medicaid (excluding 2006 when Medicare Part D was implemented, changing the way Medicaid paid for some beneficiaries’ prescription drugs). These slow growth rates were due primarily to slower enrollment growth and to efforts by the states to control costs following the expiration of enhanced federal matching rates.
- Out-of-pocket spending (3.8 percent)—spending growth increased faster in 2012 compared to 2011, when growth was 3.5 percent, due mainly to increased cost sharing for physician and clinical services. This growth, however, was moderated by reduced out-of-pocket spending on previously expensive prescription brand-name drugs that had lost patent protection. Total out-of-pocket spending reached $328.2 billion in 2012.
Major areas where spending growth slowed (from 2011) included:
- Retail prescription drugs (0.4 percent)—spending growth slowed from 2.5 percent in 2011 to reach $263.3 billion in 2012. This reduced growth rate was driven largely by a slowdown in overall prices for prescription drugs as an unusually large number of blockbuster drugs (such as Lipitor, Plavix, and Singulair) lost patent protection in late 2011 and in 2012, which led to increased sales of lower-cost generics.
- Nursing care facilities and continuing care retirement communities (1.6 percent)—spending growth slowed from 4.3 percent in 2011 to reach $151.5 billion in 2012. This slower growth was primarily due to a one-time Medicare payment reduction to skilled nursing facilities to adjust for a large increase in payments in 2011.
- Private health insurance (3.2 percent)—continued slow growth in total premiums (following 3.4 percent growth in 2011) was mainly due to low growth in enrollment in 2012, which remained 9.4 million enrollees fewer in 2012 than in 2007. Net enrollment gains in high-deductible health plans, which generally have lower premiums and higher cost sharing than other more popular plans, also contributed to the slow premium growth in 2012. Total private health insurance premiums reached $917.0 billion in 2012. For medical benefits, per enrollee spending accelerated slightly, from 2.9 percent growth in 2011 to 3.2 percent in 2012, both near historic lows, and was primarily due to increased growth in spending for hospital care and for physician and clinical services.
- Medicare spending (4.8 percent)—growth slowed slightly (compared to 5.0 percent growth in 2011) to reach $572.5 billion in 2012. Growth in fee-for-service expenditures, which accounted for nearly three-quarters of total Medicare spending, slowed from 4.3 percent in 2011 to 2.7 percent in 2012. Medicare Advantage spending accounted for the remainder, increasing 10.9 percent in 2012 (compared to 7.0 percent growth in 2011). Total enrollment in Medicare for all beneficiaries jumped 4.1 percent in 2012—the largest one-year increase in thirty-nine years, as the oldest members of the baby boom generation became eligible to enroll in Medicare in 2011. Slower growth in total Medicare spending in 2012 was primarily due to a one-time payment reduction for skilled nursing facilities.
Don't miss the insightful policy recommendations and thought-provoking research findings published in Health Affairs. I want to SUBSCRIBE NOW!