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Healthcare Spending Growth Hits 53-Year Low

 |  By John Commins  
   January 07, 2014

Healthcare spending in 2012 grew more slowly than the growth of the overall economy, says CMS. While the Obama administration was quick to credit the healthcare reform law, federal actuaries cite other factors—chiefly the economic recession.

Healthcare spending grew 3.7% in 2012 to $2.8 trillion, marking the fourth straight year of relatively slow growth and the slowest sustained period of healthcare cost growth in the 53 years that the statistic has been tracked, the federal government announced on Monday afternoon.

An analysis by the Office of the Actuary at the Centers for Medicare & Medicaid Services shows that the $2.8 trillion spent on healthcare in the United States in 2012 represented 17.2% of the gross domestic product. That's a decline from 17.3% of GDP in 2011 because healthcare spending in 2012 grew more slowly than the 4.6% growth in the overall economy. The report appears in the January issue of Health Affairs.

Obama Administration officials were quick to credit the Patient Protection and Affordable Care Act for the slowest growth rates ever recorded in the 53-year history of the National Health Expenditure Accounts.

"For the second straight year, we have seen overall healthcare costs grow slower than the economy as a whole. This is good news," CMS Administrator Marilyn Tavenner said in prepared remarks. "We will continue to work with tools given to us by the Affordable Care Act that will both help us control costs for taxpayers and consumers while increasing the quality of care."

The authors of the report noted, however, other factors were at play, mainly the nationwide economic recession.

"The low rates of national health spending growth and relative stability since 2009 primarily reflect the lagged impacts of the recent severe economic recession," Anne B. Martin, an economist at CMS and lead author of the study said in prepared remarks. "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."

In fact, the study said that the ACA had "minimal impact on aggregate health spending through 2012." However, several provisions of the sweeping reforms affected "certain subcomponents" of national health expenditures, namely the increase in the Medicaid rebates for prescription drugs, the Medicare "donut hole" drug coverage gap program, the expansion of coverage for dependents under the age of 26, and minimal medical loss ratios for commercial plans. 

The slower growth tracked with personal healthcare spending on healthcare goods and services, which the study said accounted for 85% of total national healthcare spending and which grew by 3.9% in 2012 – up .4% from 2011. The slight uptick was linked to accelerated growth in hospital, physician, and clinical services.

Offsetting that growth, however, was slower growth in spending for prescription drugs and nursing home care. Out-of-pocket spending for Medicaid grew faster in 2012 than in 2011, while private plans and Medicare saw lower spending growth than in 2011, the report said.

CMS offered this detailed breakdown of healthcare cost growth in 2012 compared with 2011:

Hospital spending (4.9%)
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 non-price factors. Price growth (as measured by the Producer Price Index for hospital services) picked up slightly in 2012 to 2.5%, compared to 2.1% a year earlier. Non-price factors, which include use and intensity of services, also grew faster than in 2011.

Physician and clinical services (4.6%)
Growth increased from 4.1% in 2011 to reach $565 billion in 2012 due primarily to increased growth in non-price factors, such as the use and complexity or intensity of services. Physician services, which accounted for 80% of this spending, grew by 4% in 2012, up from 3.5% growth in 2011.

Medicaid expenditures (3.3%)
Growth increased from 2.4% 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 and changed the way Medicaid paid for some beneficiaries' prescription drugs. These slow growth rates were due primarily to slower enrollment growth and efforts by the states to control costs following the expiration of enhanced federal matching rates.

Out-of-pocket spending (3.8%)
Spending growth increased faster in 2012 compared to 2011 when growth was 3.5% due mainly to increased cost sharing for physician and clinical services. The growth 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.

Retail prescription drugs (.4 percent)
Spending growth slowed from 2.5% 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 name-brand drugs such as Lipitor, Plavix, and Singulair lost patent protection in late 2011 and in 2012.

Nursing care facilities and continuing care retirement communities (1.6%)
Spending growth slowed from 4.3% 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%)
Continued slow growth in total premiums (following 3.4% 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% growth in 2011 to 3.2% 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%)
Growth slowed slightly (compared to 5% 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% in 2011 to 2.7% in 2012. Medicare Advantage spending accounted for the remainder, increasing 10.9% in 2012 (compared to 7% in 2011).

Total enrollment in Medicare for all beneficiaries jumped 4.1% in 2012--the largest one-year increase in 39 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.

John Commins is a content specialist and online news editor for HealthLeaders, a Simplify Compliance brand.

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