Acceleration in National Health Care Spending and Why

Acceleration in National Health Care Spending and Why

The Centers for Medicare and Medicaid Services (CMS) released new data showing that national spending on health care increased to $3.6 trillion in 2018, or $11,172 per person. 2018’s growth rate was 4.6 percent, where 2017’s was 4.2 percent.

The spending increased even as the number of uninsured people increased by 1.0 million for the second year in a row to reach 30.7 million in 2018.

As reported by Health Affairs, the acceleration was driven by faster growth in both private health insurance and Medicare, which were influenced by the reinstatement of the health insurance tax in 2018. The tax was applied to private health insurance, Medicare Advantage and Medicaid Managed care plans in 2018 after a one-year moratorium on the fee for 2017. Insurers and businesses have been lobbying for an additional moratorium for 2020.

Spending was not shared equally. Households and the federal government were tied for having the highest share of spending at 28 percent. Private businesses had the second highest at 20 percent. State and local government were the third highest at 17 percent.

Private health insurance spending increased to 5.8 percent from 4.2 percent, totaling $1.2 trillion and taking up the largest piece of the health care spending pie at 34 percent. CMS also attributed this growth from 2017 to the reinstatement of the tax.

Medicare spending increased to 6.4 percent from 4.2 percent, totaling $750.2 billion and taking up the second largest piece of the health care spending pie at 21 percent. Aside from the tax, CMS cites faster growth in Medicare spending for medical goods and services and an increase in government administration spending as reasons for the growth.

Medicaid spending increased to 3.0 percent from 2.6 percent, totaling $597.4 billion and making up 16 percent of total health care spending. In addition to the tax, CMS cites the faster growth in the net cost of insurance for Medicaid managed care plans as reasons for Medicaid’s spending acceleration.

Out-of-pocket spending, which includes direct consumer payments such as copayments, deductibles and spending not covered by insurance, increased to 2.8 percent from 2.2 percent, totaling $375.6 billion and making up 10 percent of total health care spending.

Consumer spending on out-of-pocket costs represents the largest category of household health care spending. While there was lower spending on out-of-pocket costs for hospital care, this decrease was more than offset by higher spending on retail prescription drugs, durable medical equipment and dental services.

According to the Peter G. Peterson foundation, America spends more than any other country in the Organization for Economic Cooperation and Development (OECD) on health care. Countries in the OECD include Spain, the United Kingdom, Norway, Canada, Japan, France, Germany and Switzerland. In 2018, the U.S. spent 17 percent of its GDP on health care, while OECD countries spent on average 8.8 percent.

Health care spending is driven by utilization (the number of services used) and price. Since utilization rates in the U.S. do not differ significantly from other OECD countries, price appears to be the main difference between the U.S. and OECD countries in health care spending. Peter G. Peterson, in fact, reports higher prices in the U.S. regardless of utilization rates.

Prices could be higher for several reasons, including the consolidation of hospitals, inefficiencies and administrative waste. The U.S. spends over $800 per person on administrative costs, nearly five times more than the average of OECD countries and significantly more than the U.S. spends on preventative or long-term care.

This higher spending does not equate to better health. The life expectancy in the United States has decreased for the third year in a row. The U.S. also performs worse in infant mortality and unmanaged diabetes compared to other OECD countries.

Sources:

  1. https://www.healthaffairs.org/do/10.1377/hblog20191209.824164/full/
  2. https://www.cms.gov/newsroom/press-releases/cms-office-actuary-releases-2018-national-health-expenditures
  3. https://www.healthaffairs.org/doi/full/10.1377/hlthaff.2019.01451
  4. https://www.pgpf.org/blog/2019/07/how-does-the-us-healthcare-system-compare-to-other-countries

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