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US Healthcare Spending Hit $3.3T in 2016

By John Commins  
   December 06, 2017

Hospital spending grew to $1.1 trillion in 2016, representing 32% of overall US healthcare spending, even as expenditure growth for hospital care slowed to 4.7% from 5.7% in 2015.

Healthcare spending in the United States grew by 4.3% to $3.3 trillion, or $10,348 per person, and represented nearly 18% of the national economy in 2016, federal actuaries report.

The new analysis from the Office of the Actuary at the Centers for Medicare and Medicaid Services shows national health spending growth slowed in 2016, when compared to spending increases of 5.1% and 5.8% in 2014 and 2015, respectively.

"The slowdown on overall healthcare spending was broadly based, as spending for the largest categories by payer and by goods and services decelerated," report lead author Micah Hartman said Wednesday in a media availability. "This includes Medicaid, private health insurance, and Medicare, as well as retail prescription drugs, hospital care, and physician and clinical services."

Hartman, a statistician with the Office of the Actuary at CMS, said that he has not seen as broad a deceleration in healthcare spending growth since 2010.

"Basically, we saw two major things happening in 2014 and 2015. We had the enrollment expansion that impacted Medicaid and private health insurance with 10.2 million and 8.7 million people gaining coverage," he said. "In addition, in 2014 and 2015 we saw strong and rapid spending growth in retail prescription drugs."

Those two factors accelerated spending growth more than it had in recent years.

"Following those initial impacts, they started to slow down and were not as strong going into 2016, and that was part of the reason why we saw this slowdown so broadly based," Hartman said.  "When you add people to the rolls of Medicaid and private health insurance they are going to be using all types of medical goods and services. When those initial impacts start to wear off, that's when you’re going to see that slowdown that we saw in 2016."

Nonetheless, the share of the economy devoted to healthcare spending edged up to 17.9% in 2016 from 17.7% in 2015, according to the report, which was published online Wednesday by Health Affairs.

And, healthcare spending growth easily outpaced the 2.9% rate of growth for the Gross Domestic Product in 2016.

On a per capita basis, national health spending grew at 3.5%, reaching $10,348 in 2016. Changes in the age and gender mix of the population accounted for a 0.6 percentage point of the growth in per capita health spending. Increases in medical prices accounted for 1.4 percentage points, while growth in the residual use and intensity of healthcare goods and services accounted for the remaining 1.6 percentage points, the report said.

Among the key findings in the report:

  • Hospital spending hit $1.1 trillion and represented 32% of overall healthcare spending. Hospital care expenditure growth slowed from 5.7% in 2015 to 4.7% in 2016.
  • The slower growth in hospital spending in 2016 reflected a slower growth of 2.3% in the use and intensity of services, lower than the increase of 3.4% in 2015. That was due to slower enrollment growth, which was partly offset by faster growth in hospital prices, which accelerated slightly from 0.9% in 2015 to 1.2% in 2016.
  • Physician and clinical services spending slowed from a growth rate of 5.9% in 2015 to 5.4% in 2016, with total physician and clinical services expenditures reaching $664.9 billion, or 20% of overall healthcare spending. Growth in non-price factors such as the use and intensity of services increased 3.8% and accounted for most of the increase in spending in 2016, though at a slower rate than the 4.5% increase in 2015.
  • The 8.2% spending growth for clinical services nearly doubled the 4.6% growth in spending for physician services for the twelfth consecutive year. Clinical services spending growth was driven primarily by freestanding ambulatory surgical and emergency centers.

In 2014 and 2015, spending increased 5.1% and 5.8%, respectively, as the Affordable Care Act expanded health insurance coverage through Marketplace plans and Medicaid. By 2016, however, the rate of spending growth was more in line with the average annual rate of 4.2% from 2008–15, Hartman said.

Among the major payers, actuaries found that:

  • Spending growth slowed in 2016 for private health insurance, Medicaid, and Medicare. For private health insurance and Medicaid, the slower growth was influenced by decelerated enrollment growth. Medicare spending slowed because of lower per enrollee growth rates.
  • Private health insurance reached $1.1 trillion and increased 5.1% in 2016, slower than 6.9% growth in 2015. Private health insurance continued to be the largest payer for health care goods and services in the US in 2016—accounting for just over one-third of total healthcare spending. The notable slowdown in private health insurance spending was mainly driven by slower enrollment growth, slower growth in spending for retail prescription drugs, and a continued shift to high-deductible plans. On a per enrollee basis, private health insurance spending increased 5.1% in 2016, about the same as 2015.
  • Medicare spending hit $672.1 billion, accounting for 20% of total healthcare expenditures. Spending for the program grew at 3.6% in 2016—slowing from 4.8% growth in 2015—while enrollment growth was stable. Spending growth per Medicare enrollee increased at a slower rate in 2016 (0.8%) than in 2015 (2.1%). Physician and clinical services and prescription drug spending growth slowed, while Medicare hospital care spending remained relatively stable in 2015 and 2016.
  • Medicaid expenditures reached $565.5 billion in 2016, accounting for 17% of total national health expenditures. Medicaid spending increased 3.9% in 2016, much slower than the rates in 2015 and 2014 (9.5% and 11.5%, respectively), both of which were due to the initial impacts of ACA’s expansion of Medicaid eligibility.
  • On a per enrollee basis, Medicaid spending increased 0.9% compared to 4.5% in 2015, which reflects increased efforts by states to control costs, a decline in supplemental payments to hospitals, and a decrease in per enrollee costs for newly eligible adults. Medicaid goods and services—with the exception of nursing care facilities and continuing care retirement communities—experienced decelerating growth in 2016. 

Retail prescription drugs expenditures reached $328.6 billion and represented 10% of overall health spending. Growth in spending for retail prescription drugs increased 1.3% percent in 2016, following much stronger growth rates in 2014 and 2015 (12.4% and 8.9%, respectively).

Hartman attributed the deceleration in 2016 to a decline in spending for drugs used to treat hepatitis C, the introduction of fewer new drugs, and slower growth in prices for both brand-name and generic drugs. Despite large fluctuations in growth rates over the past several years, the 10% share of national health spending is similar to the share in 2009.  

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

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