New actuarial data (December 11, 2017) from the Centers for Medicaid and Medicare Services (CMS) had many interesting nuggets of information—some of which contradict long-held assumptions about the U.S. health care system.
Prescription drug spending growth, for example, nearly collapsed in 2016. Hospital revenue grew faster than overall health spending and physician/clinic revenues grew even faster than hospital revenues. And out-of-pocket spending is the highest in a decade.
The overall headline factoid is that health care spending growth remains low and slowed further in 2016 to rates below those recorded in 2014 and 2015.
For the full report, “National Health Care Spending In 2016: Spending and Enrollment Growth Slow After Initial Coverage Expansions,” click here.
Since 2006 Health Care Has Grown to 18% of U.S. Economy
Over the ten years covered by this report, the health care industry was hit with multiple negative events including: the most severe recession since the Great Depression; the collapse of medical price inflation to historic lows; massive changes to the health care system and a nascent national health insurance program—the Affordable Care Act (ACA).
Despite all those disruptions—U.S. health care spending rose every year—although at the lowest rates in the history of this report (the National Health Expenditure Accounts).
In 2006 health care spending was 15.9% of the entire U.S. economy. At the start of 2017, it was 17.9%.
Notably, the average annual increase of 0.2 % per year is nearly equal to the historical annual average over the past 50 years.
U.S. health care spending trends have been extremely stable for at least a half a century. If those trends continue, and they should, then health care spending will rise to one-fifth of all U.S. economic activity over the next ten years.
10 Key Take-Aways From CMS’s U.S. Health Care Spending Actuarial Report
1. The health care spending slowdown was broad-based.
According to the study’s authors, “In 2016 the slowdown was broadly based, as spending for the largest categories by payer and by service decelerated. Enrollment trends drove the slowdown in Medicaid and private health insurance spending growth in 2016, while slower per enrollee spending growth influenced Medicare spending. Furthermore, spending for retail prescription drugs slowed, partly as a result of lower spending for drugs used to treat hepatitis C, while slower use and intensity of services drove the slowdown in hospital care and physician and clinical services.”
2. We spend more on health care, per capita, then we spend on food and clothing, per capita.
Per capita health care spending was $10,348 in 2016, or $354 higher than in 2015. By comparison, according to the Bureau of Labor Statistics August 29, 2017 report, Americans spent $7,203 per capita on food and $1,803 on apparel and services in 2016.
Health care spending was higher in 2016 than food and clothing, combined.
3. Demographics are the LEAST important factor affecting health care spending growth rates.
Overall, three factors pushed health care spending up 3.5% per capita in 2016:
- Health care Inflation (price growth): 1.6%
- Demographics (age and sex): 0.6%
- Use and “intensity” of health care goods and services:1. 6%
Demographics—aging population and the effects of gender—was the LEAST powerful factor driving health care spending change.
Health care inflation ticked up in 2016 to 1.6% from 1.0% in 2015. These are historically low levels of inflation. From 2004-2007 it was 3.4% annually. From 2008-2013 it was 2.1%.
CMS’ economists attribute the slight rise in health care inflation to overall economic price inflation—not health care-specific reasons. Indeed, as all industry participants will attest, health care is a low inflation industry with some sectors actually deflating.
Health care services and durable medical equipment had the highest rates of price inflation while retail prescription drugs and nondurable medical products (implants, instruments, bracing) had the slowest rates of price inflation.
CMS’ economists did note that the ACA’s expansion of health insurance coverage in 2014 and 2015 contributed to the increased use of health care goods and services, and use and intensity grew 2.0% in 2014 and 3.5% in 2015.
4. Federal, state, and local health care spending is now 45% of the total (not counting VA).
In 2016 the federal, state, and local governments accounted for the largest shares of health care spending (45%).
However, after two consecutive years of rapid growth (10.9% in 2014 and 8.9% in 2015), federal spending for health care dropped significantly to 3.9% in 2016.
Medicaid spending growth rates slowed dramatically in 2016 and that pulled the overall rate of federal health care growth rates down.
In 2014 and 2015 Medicaid spending rose 18.8% and 12.5%, respectively. That was largely funded under the ACA program. In 2016 federal spending for Medicaid hit the brakes, coming in at 2.8%.
States also pulled back on Medicaid spending growth by reducing supplemental payments to hospitals. The net effect was to slow state and local government health care spending growth from 4.9% in 2015 to 3.2% in 2016.
5. Retail drug spending growth rates collapsed in 2016.
Total retail prescription drug spending rose a paltry 1.3% in 2016.
That’s after growing 12.4% and 8.9% in 2014 and 2015, respectively.
What happened?
The authors of the report attribute the strong growth rates in 2014 and 2015 to new medicines and higher prices for existing brand-name drugs.
Conversely the low growth in 2016 was attributed to the absence of new medicines. According to the report authors: “In 2016, fewer new medicines were approved—twenty-two compared to forty-five in 2015 and forty-one in 2014.”
6. Hospital care spending grew faster in 2016 than overall health care spending.
Hospital care services represented 32% of total health care spending in 2016.
That is unchanged since 2013.
But the rate of hospital spending rose a healthy 4.7% in 2016 to $1.1 trillion.
In 2014 and 2015, implementation of the ACA and improved economic conditions, drove higher rates of service utilization and non-price growth.
Because of ACA, the percent of the U.S. population with health insurance rose from 86% to 91%.
Digging a little deeper into the numbers showed the following:
- Slower growth in Medicaid
- Slower growth in private health insurance spending
- Stable growth in Medicare spending
- Faster growth in out-of-pocket spending
7. Physician and clinic health care spending rose even faster than hospital spending.
Total spending for physician and clinical services grew 5.4% in 2016 to $664.9 billion, and accounted for 20% of all health care spending.
Spending on physician and clinical services increased more rapidly in 2016 than expenditures for all other health care goods and services.
Clinical service growth (8.2% in 2016) was faster than physician service growth (4.6% in 2016) for the 12th consecutive year.
Freestanding ambulatory surgical and emergency centers grew even faster than overall clinical services.
Use and intensity of physician and clinical services accounted for three-quarters of physician and clinic service spending growth.
Private health insurance spending on physician and clinical services, which represented a 43% share of all physician and clinical services spending, increased 5.8% in 2016, up slightly 5.5% in 2015.
8. Private health insurance spending growth outpaced overall health care spending – yet again.
Private health insurance expenditures increased 5.1% in 2016 to reach $1.1 trillion.
Private insurance remains the largest payer for health care goods and services, with just over 60% of the insured population covered by some form of private insurance in 2016.
Private health insurance reimbursement spending growth rates slowed slightly from 5.9% in 2015 to 5.3% in 2016. The reason was slower growth in spending for retail prescription drugs and the continued shift to high-deductible plans.
The amount of private health insurance spending attributed to nonmedical benefit expenses (such as administrative costs, taxes, net gains or losses to reserves, and profits), grew faster in 2016, increasing 3.3% after almost zero growth in 2015.
9. Medicare spending growth was slightly below average and trending down.
Medicare spending grew 3.6% in 2016, down from 4.8% in 2015.
Medicare enrollment rose 2.8% in 2016 compared to 2.7% in 2015.
Total Medicare expenditures reached $672.1 billion in 2016, which was 20% of total health care spending.
Medicare spending per enrollee increased 0.8% in 2016, down from 2.1% in 2015. Again, the two factors behind this very slow rate of spending growth were sluggish prescription drug spending and declines in durable medical products and nursing homecare.
Finally, CMS’ economists found that Medicare Advantage payments were affected by changes associated with the ACA, including payment rates that are linked to fee-for-service costs, productivity adjustments that were tied to fee-for-service benchmark rates, implementation of quality measures that are tied to bonuses and rebates, and implementation of insurer fees.
10. Out-of-pocket health care spending growth rates grew at their fastest rate in a decade!
Total out-of-pocket spending (which includes all direct consumer payments such as copayments, deductibles, coinsurance, and spending for non-covered services) increased 3.9% in 2016—which is the fastest rate of growth since 2007.
In 2016, out-of-pocket spending continued to account for 11% of all health care spending.
Out-of-pocket spending is affected by the number of uninsured people (who pay out of pocket for a majority of their health care costs) and more enrollment in high deductible health plans.
In 2016, 29% of workers with private health coverage were enrolled in these high-deductible plans, up from 24% in 2015 and 20% in 2014.
There is no doubt that these plans fueled rising rates of out-of-pocket health care spending in 2016.
Average private health insurance deductibles for single coverage plans increased 12% in 2016, up from 8% in 2015 and 7% in 2014.
Notably, hospital services experienced more rapid growth in out-of-pocket spending in 2016, with a 4.8% increase in such spending following declines of 5.1% and 2.8% in 2015 and 2014, respectively.
In 2016, out-of-pocket spending grew the fastest for durable medical equipment (6.9%) and declined for retail prescription drugs (−1.0%).
