US health care spending hits $3.5 trillion in 2017, but rate of growth slows
Health care spending in the United States topped $10,000 per person in 2017, which is undeniably a lot of money, but it actually represents a deceleration of the upward trend in health expenditures to pre-Affordable Care Act levels.
According to the Office of the Actuary at the Centers for Medicare and Medicaid Services, national health spending grew at a rate of 3.9 percent last year, with Medicare spending up by 4.2 percent and Medicaid up by 2.9 percent. Private insurance spending rose 4.2 percent and out-of-pocket expenditures increased 2.9 percent.
Total expenditures hit a record $3.5 trillion in 2017, but the 3.9 percent increase was notably less than the 4.8 percent rise in 2016, which was down from a 5.8 percent increase in 2015. Acceleration in health care spending had previously dipped below 4 percent in the wake of the Great Recession, reaching the lowest rate on record, 3.6 percent, in 2013 before the ACA took effect.
After years of rapidly rising costs, 2017 marks the second consecutive year that the rate at which spending was increasing slowed. Health care spending as a percentage of gross domestic product went down slightly, from 18 percent in 2016 to 17.9 percent in 2017, but expenditures are still growing faster than wages and the economy as a whole.
Experts attribute the relative stabilization of health care costs to several factors.
More than half of health care spending in 2017 went toward hospitals, physicians, and clinical services, and CMS reported those categories saw slower growth in both the use and intensity of services. Hospital spending slowed for private insurers, Medicare, and Medicaid.
Retail drug spending, which accounts for 10 percent of all costs, grew 0.4 percent in 2017, 12 percentage points slower than it did three years earlier. CMS attributes a spike in drug expenditures in 2014 and 2015 to the introduction of expensive new medicines and higher prices for brand-name drugs.
“Retail prescription drug spending growth slowed in 2017 primarily due to slower growth in the number of prescriptions dispensed, a continued shift to lower-cost generic drugs, slower growth in the volume of some high-cost drugs, declines in generic drug prices, and lower price increases for existing brand-name drugs,” the report stated.
Most other categories of expenditures saw similar dips in the rate of growth, but spending on other health, residential, and personal care services and on durable medical equipment accelerated slightly.
All major sources of health care funds grew at slower rates in 2017, including Medicare and Medicaid. Out-of-pocket spending, which accounted for 10 percent of funds, grew 2.6 percent, down from 4.4 percent in 2016. About one-third of expenditures came from private health insurance spending, which increased by 4.2 percent to $1.2 trillion, compared to 6.2 percent in 2016.
“The deceleration was influenced by slower growth in medical benefits and a decline in fees and taxes resulting from the Consolidated Appropriations Act 2016, which suspended collection of the health insurance provider fee in 2017,” CMS stated.
The increase of the insured population triggered by the Affordable Care Act imposed significant new costs on the government and insurers in 2014 and 2015. One major element of that was the expansion of Medicaid to millions of new patients. Those costs are largely baked into the system now, though.
“The slowdown is likely because the uninsured rate stopped declining in 2017,” said Vivian Ho, director of the Center for Health and Biosciences at Rice University’s Baker Institute for Public Policy. “In 2015 and 2016, more people were becoming insured and therefore spending more on healthcare with their extra coverage.”
That trend will likely continue. For the first time in years, the number of uninsured Americans rose in 2018. ACA open enrollment for 2019 is nearly over and signups are down significantly. Some of this is attributable to Virginia accepting the Medicaid expansion or more employers offering coverage, but with the individual mandate gone, millions are expected to just forgo insurance.
Although the ACA contributed heavily to rising costs for several years, total health expenditures are still below what they were projected to be before the law passed. According to the Urban Institute, CMS actuaries predicted in 2010 that spending would total nearly $4 trillion in 2017 and more than $4.5 trillion in 2019.
Some have posited that deceleration in 2017 was in part driven by improved efficiency, but Ho sees little evidence of that in the report. Instead, she believes patients are using health care services less because changes in insurance and pricing have shifted more costs to them.
“To me, this is a price response by consumers,” she said. “This is not efficiency gains Prices are getting too high and it’s squeezing the patient.”
While the slowdown in the increase of health care costs is a positive trend, workers may not be seeing the benefits of it because insurance premiums and deductibles are still rising. A new report released by the Commonwealth Fund Friday shows employer and employee premium contributions increased at a faster rate in 2017 than overall health care costs.
According to the report, premium and deductible costs ate up nearly 12 percent of median income for workers in 2017, up from 7.8 percent ten years earlier. This is almost as much as Americans spend on food, which averaged 13 percent of median income last year. The total cost of premiums and potential deductible spending for single and family policies averaged $7,240.
Premiums for employer health plans varied widely by state in 2017, but they rose sharply in almost all of them, averaging a 4.4 percent increase for single plans and 5.5 percent for family plans. Single person premiums cleared $7,000 in eight states, and family premiums were $20,000 or higher in seven states.
Worker contributions to those premiums are also up, averaging $1,415 for single plans and $5,218 for families. Deductibles for single person plans were up 6.6 percent in 2017, averaging about $1,800, with state-by-state figures ranging from $863 in Hawaii to $2,300 in Maine and New Hampshire.
“The cost of employer health insurance premiums and deductibles continues to outpace growth in workers’ wages. This is concerning, because it may put both coverage and health care out of reach for people who need it most — people with low incomes and those with health problems,” said Sara Collins, lead author of the Commonwealth Fund study, in a statement.
After the rate of the increase in health expenditures dropped two years in a row, health economists point to a number of reforms that could keep the system moving in that direction and save money for the government, insurers, and patients.
“A lot of policymakers have been in favor of allowing Medicare to negotiate prices for drugs,” Ho said.
The Trump administration has laid out a blueprint for lowering prescription drug costs, but Ho has doubts about that plan. She also warned hospital consolidations and mergers are reducing competition and raising prices in many communities without much scrutiny.
The Center for American Progress also sounded an alarm about hospital and provider consolidation juicing up costs in a report released this week. The report recommends stepping up antitrust enforcement, improving transparency in billing, establishing a patient ombudsman, and capping some prices.
“Hospitals and physician practices are increasingly likely to belong to dominant, multi-provider health systems, which often charge higher prices without improving the quality of patient care,” said co-author Emily Gee. “While transparency and choice can be helpful, the current situation stunts competition and demands stronger antitrust enforcement and policies to directly address health care prices.”
The Commonwealth Fund study looked at ways to lift some costs off patients, though most of the steps would transfer the expenses to their employers or the government.
“Policies that would reduce health care burdens on employees include fixing the Affordable Care Act’s family coverage glitch, requiring employers to exclude some services from the deductible, and increasing the required minimum value of employer plans,” Collins said.
Under the ACA, tax penalties for employers kick in if premiums exceed 9.5 percent of workers’ income, but that provision applies only to single-person plans, which leaves many middle-income families unable to take advantage of it. The Commonwealth Fund recommends tying the penalty to the more expensive family plans instead.
People receiving employer coverage currently become eligible for marketplace subsidies if their plan covers less than 60 percent of health care costs. The report calls for increasing that threshold to 70 percent or higher. It also suggests offering refundable tax credits for people who have insurance to pay for out-of-pocket costs that exceed a set percentage of their income.
“Income-related cost protections like these will need to be paired with systemwide efforts to slow medical spending,” the Commonwealth Fund report states. “These efforts could include: innovation in care organization and provider payment to achieve greater value and better health outcomes, addressing the increasing concentration of insurer and provider markets through antitrust policy, and slowing the growth rate of prescription drug costs.”
Few of these policy prescriptions have much hope of being adopted in 2019 with a Democrat-controlled House, a Republican Senate majority, and a president focused on other priorities. The GOP effort to repeal the ACA is presumed dead, but a lawsuit pending in Texas could upend the entire health insurance market and the policy debate if a judge declares the law unconstitutional.
For now, the Trump administration is working to loosen restrictions on less expensive insurance plans that also provide fewer benefits. Some experts have raised concerns skimpy coverage will lead to higher out-of-pocket costs if people get sick, but overall spending on premiums would slip if healthier people gravitate to these plans.
As Congress turns its attention to entitlement reform, the deceleration in Medicare and Medicaid funding could remove some urgency from the discussion, although the two programs combined cost nearly $1.3 trillion in 2017.
"Medicaid costs are growing at close to flat. Those pushing block grants or caps for Medicaid are aiming to solve a problem that doesn’t exist," former Obama administration CMS Administrator Andy Slavitt said on Twitter Thursday.
Halting rising health care costs entirely or driving them down presents a much greater challenge than slowing them, but Ho believes it could be accomplished over time with a shift in focus from quantity of care to quality of care.
“I think in the very long run, reducing health care costs is possible,” she said. “You need to get the waste out of the system and that’s very hard to do.”