National Health Care Spending; But what’s the real story?

December 6, 2019

Topics: Quote of the Day

By Micah Hartman, Anne B. Martin, Joseph Benson, Aaron Catlin – CMS Office of the Actuary
Health Affairs, December 5, 2019

Abstract

US health care spending increased 4.6 percent to reach $3.6 trillion in 2018, a faster growth rate than the rate of 4.2 percent in 2017 but the same rate as in 2016. The share of the economy devoted to health care spending declined to 17.7 percent in 2018, compared to 17.9 percent in 2017. The 0.4-percentage-point acceleration in overall growth in 2018 was driven by faster growth in both private health insurance and Medicare, which were influenced by the reinstatement of the health insurance tax. For personal health care spending (which accounted for 84 percent of national health care spending), growth in 2018 remained unchanged from 2017 at 4.1 percent. The total number of uninsured people increased by 1.0 million for the second year in a row, to reach 30.7 million in 2018.

Conclusion

Health care spending increased 4.6 percent in 2018, a faster rate than in 2017 but a lower growth rate than that of the overall economy, which increased 5.4 percent in 2018. For health care, the relative stability in spending growth since the insurance expansions in 2014 and 2015 reflects continued low growth in medical prices, which is influenced by both low economywide price growth and negative excess medical price inflation, as well as relative stability in health insurance enrollment.

The slight acceleration in health care spending growth in 2018 reflected faster growth in non–personal health care spending, particularly in the net cost of health insurance. Price growth was faster for health insurance because of the impact of the reinstated health insurance tax, which had been suspended in 2017. Personal health care spending grew at the same rate in 2018 as in 2017, as slower growth in the use and intensity of services was offset by faster growth in prices for most health care services.

Except for the slight uptick that was driven primarily by the one-time impact of the reinstated health insurance tax, growth in 2018 was relatively stable. Still, changes may be on the horizon. In 2019 that tax was suspended and Medicaid coverage was expanded in five additional states, while at the same time the individual mandate penalty was effectively repealed. In addition, the results of the upcoming comprehensive revision of the National Health Expenditure Accounts will be reflected in the release of next year’s health spending report detailing trends through 2019.

https://www.healthaffairs.org…

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National Health Expenditure Data, NHE Fact Sheet

CMS.gov

Historical NHE, 2018

• NHE grew 4.6% to $3.6 trillion in 2018, or $11,172 per person, and accounted for 17.7% of Gross Domestic Product (GDP).
• Medicare spending grew 6.4% to $750.2 billion in 2018, or 21 percent of total NHE.
• Medicaid spending grew 3.0% to $597.4 billion in 2018, or 16 percent of total NHE.
• Private health insurance spending grew 5.8% to $1,243.0 billion in 2018, or 34 percent of total NHE.
• Out of pocket spending grew 2.8% to $375.6 billion in 2018, or 10 percent of total NHE.
• Hospital expenditures grew 4.5% to $1,191.8 billion in 2018, slower than the 4.7% growth in 2017.
• Physician and clinical services expenditures grew 4.1% to $725.6 billion in 2018, a slower growth than the 4.7% in 2017.
• Prescription drug spending increased 2.5% to $335.0 billion in 2018, faster than the 1.4% growth in 2017.

Projected NHE, 2018-2027

• Under current law, national health spending is projected to grow at an average rate of 5.5 percent per year for 2018-27 and to reach nearly $6.0 trillion by 2027.
• Health spending is projected to grow 0.8 percentage point faster than Gross Domestic Product (GDP) per year over the 2018-27 period; as a result, the health share of GDP is expected to rise from 17.9 percent in 2017 to 19.4 percent by 2027.
• Key economic and demographic factors fundamental to the health sector are anticipated to be the major drivers during 2018-27.
• Prices for health care goods and services are projected to grow somewhat faster over 2018-27 (2.5 percent compared to 1.1 percent for 2014-17).
• As a result of comparatively higher projected enrollment growth, average annual spending growth in Medicare (7.4 percent) is expected to exceed that of Medicaid (5.5 percent) and private health insurance (4.8 percent).
• The Medicare enrollment impacts are the key reason the share of health care spending sponsored by federal, state, and local governments is expected to increase by 2 percentage points over the projection period, reaching 47 percent by 2027.
• The insured share of the population is expected to remain stable at around 90 percent throughout 2018-27.

https://www.cms.gov…

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Comment:

By Don McCanne, M.D.

So, as of 2018, we are spending $3.6 trillion on health care in the United States or 17.7% of our Gross Domestic Product – an average of $11,172 per person. With a 2018 median household income of $63,179, it is no wonder that the typical family is having difficulty paying for their proportionate share of our national health expenditures. And the media tell us that the polls show that most people want to keep the health plans that they have. Isn’t there a disconnect here somewhere?

Although this annual report is primarily about health care spending, there is another statistic about which we should be concerned. The total number of uninsured increased by one million for the second year in a row, reaching 30.7 million in 2018. Further, the CMS Office of the Actuary predicts that 10% of the population will remain uninsured throughout the next decade.

In spite of the highest spending of all nations, we are doing a terrible job of allocating our health care dollars. Innumerable studies and the experience of other nations have shown that we could achieve optimal efficiency and equity for our health care spending merely by enacting and implementing a single payer model of an improved Medicare that covered everyone. Instead, the political momentum points to more of our same dysfunctional financing system, maybe with the insignificant tweak of adding a public option.

The media coverage?

• NYT: “Health Spending Grew Modestly”
• Reuters: “Health Spending Recovers”
• CNN: “Household Spending On Health Care Tops $! Trillion In 2018”
• Axios: “Spending Goes Up As Prices, Insurance Costs Soar”
• WSJ: “Faster Growth In Spending Due To ACA Tax”
• AP: “Prescription Drug Prices Down Slightly”
• WP: “Retail Drug Prices Declined”
• Modern Healthcare: “Spending Up 4.6% As Prices Increased”
• The Hill: “U.S. Spent $1 Trillion On Hospitals”
• KHN: “We Spend HOW MUCH On Health Care?”

Well, the media are doing their job in covering this story in that they have selected numbers and phrases from the report indicating what happened to health care spending in 2018. But, with this and other stories, they really do need to step back and look at the whole picture. By heavily reporting on the prevailing views of the politicians and policy community, they are reinforcing the inertia that permeates the reform movement today. They say people should be able to keep what they now have (even if they are terribly uninformed on where their $11,000 per person is going). But would people really want to keep paying their share of the hundreds of billions of dollars in wasteful administrative services and exorbitantly excessive prices if they really knew where the money was going? While at the same time losing their choices of physicians and hospitals and risking financial hardship due to out-of-pocket spending required should they need to access health care? Is is really better to pay for profound but hidden administrative waste, than it is to pay a lesser amount in equitable taxes – fair taxes? Surely the revulsion towards the “tax” word can’t be so great that people would elect to spend more and get less just to avoid it. Or is it?

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