National Health Spending In 2012: Rate Of Health Spending Growth Remained Low For The Fourth Consecutive Year
By Anne B. Martin, Micah Hartman, Lekha Whittle, Aaron Catlin, the National Health Expenditure Accounts Team
Health Affairs, January 2014
Abstract
For the fourth consecutive year, growth in health care spending remained low, increasing by 3.7 percent in 2012 to $2.8 trillion. At the same time, the share of the economy devoted to health fell slightly (from 17.3 percent to 17.2 percent) as the nominal gross domestic product (GDP) grew by 4.6 percent. Faster growth in hospital services and in physician and clinical services was mitigated by slower growth in prices for prescription drugs and nursing home services. Despite an uptick in enrollment growth, Medicare spending growth slowed slightly in 2012, mainly due to lower payment updates. For Medicaid, slowing enrollment growth kept spending growth near historic lows. Growth in private health insurance spending also remained near historically low rates in 2012, largely influenced by the nation’s modest economic recovery and its impact on enrollment.
Medicare
Medicare accounted for 20 percent of national health spending in 2012, with expenditures reaching $572.5 billion (Exhibit 1). Overall, Medicare spending growth slowed slightly, increasing by 4.8 percent in 2012 compared to 5.0 percent in 2011. Growth in fee-for-service expenditures, which accounted for nearly three-quarters of total Medicare spending, slowed from 4.3 percent in 2011 to 2.7 percent in 2012. Medicare Advantage spending accounted for the remainder, increasing 10.9 percent in 2012—a faster rate than in 2011, when growth was 7.0 percent.
Enrollment in Medicare for all beneficiaries (fee-for-service and Medicare Advantage) jumped 4.1 percent in 2012—the largest one-year increase in enrollment in thirty-nine years—and more than half of these enrollees joined Medicare Advantage. The noticeable increase in total Medicare enrollment reflected the oldest members of the baby-boom generation, who became eligible to enroll in Medicare in 2011.
Total Medicare spending per enrollee grew by 0.7 percent in 2012—slower than the 2.5 percent rate of growth in 2011. This slowdown was largely due to a prominent decline in spending for nursing home care, which declined by 2.2 percent in 2012 following an increase of 9.9 percent the year before. This in turn was driven primarily by a one-time payment reduction to skilled nursing facilities, which followed a large increase in payments in 2011 corresponding to the introduction of the new payment system. In 2012 this reduction was applied to skilled nursing facility rates to recalibrate payments for the newly implemented payment system.15
For Medicare fee-for-service, per enrollee spending growth decelerated from 2.7 percent in 2011 to 0.6 percent in 2012. In addition to the decline in skilled nursing facility spending, slower growth in fee-for-service spending was influenced by spending trends for prescription drugs, physician and clinical services, and hospital care. For beneficiaries with traditional fee-for-service Medicare, prescription drug spending growth slowed because of the increased use of popular lower-cost generic drugs. Slower growth in the volume and intensity of physician services and inpatient hospital admissions contributed to slower fee-for-service Medicare physician and hospital spending in 2012. Finally, for all Part A and most Part B providers, the ACA reduced payment updates in 2012, most notably for hospitals.
The acceleration in Medicare Advantage spending growth in 2012 was driven by a 10.0 percent increase in enrollment. On a per enrollee basis, however, Medicare Advantage spending growth slowed to 0.8 percent in 2012 (from 1.6 percent growth in 2011), partially as a result of the implementation of the ACA’s new payment mechanism. That mechanism links benchmark payment rates to fee-for-service costs, and its implementation effectively lowered the increase in total Medicare Advantage payments. In addition, the ACA required quality ratings of plans to factor into payments beginning in 2012.
Conclusion
In 2012 the economy continued to modestly improve, and GDP grew faster than health care spending, causing the health spending share of the economy to fall slightly—from 17.3 percent to 17.2 percent. Spending growth for personal health care goods and services accelerated in 2012 as trends for hospital services and physician and clinical services more than offset one-time impacts that helped decelerate growth, such as numerous patent expirations for brand-name retail prescription drugs and a Medicare payment reduction for skilled nursing facilities. From a payer perspective, Medicaid spending growth accelerated somewhat in 2012 after experiencing low growth in 2011, while Medicare and private health insurance spending growth slowed slightly. These mixed trends produced the fourth consecutive year of low overall health spending growth and led to a relatively stable health spending share of GDP. However, this pattern is consistent with historical experience when health spending as a share of GDP often stabilizes approximately two to three years after the end of a recession and then increases when the economy significantly improves. Recently, however, the question has arisen about whether a more fundamental change is occurring within the health sector and whether this stability will endure. From our perspective, more historical evidence is needed before concluding that we have observed a structural break in the historical relationship between the health sector and the overall economy.
http://content.healthaffairs.org/content/33/1/67.abstract
Comment:
By Don McCanne, M.D.
With the release of this annual report on health care spending in the United States, many are celebrating the fourth consecutive year of a slow down in spending increases, with some even suggesting that this is a new permanent trend due in a large part to the implementation of the Affordable Care Act (ACA). However, according to this report, ACA “had a minimal impact on overall national health spending growth through 2012.”
The reasons for increases in spending are complex and change from year to year. The excerpt on Medicare, selected above, demonstrates some of these variabilities. Spending in Medicare is important to understand since it is often held up as a program that could serve us all well as a single payer national health program. However, under our fragmented system of financing health care, it is difficult to use the current Medicare data to predict what spending might be under an Improved Medicare for All program, particularly with the split in Medicare between the traditional fee-for-service program and the private Medicare Advantage plans, but also because Medicare has little control over most of our health care spending. It is even more difficult to predict total future health spending for the entire nation with our current administratively complex, fragmented financing system.
If we had a unified single payer system, we could look at the variables that really count when we try to predict future spending. These include elements such as demographics, inflation, prices, legitimate costs, access, new technology, elimination of ineffectual technology, and the health of the economy. When you look at this list, it cries out for adopting public policies that would ensure future value in our health care spending. Many of these policies would be extremely difficult if not impossible to implement under our current financing system. That is perhaps the most important reason for replacing our dysfunctional system with a single payer national health program – an improved Medicare that covers everyone.