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Slight Uptick in National Healthcare Spending in 2018: CMS

Slight Uptick in National Healthcare Spending in 2018: CMS

In 2018, national health expenditures (NHE) grew 4.6% to $3.6 trillion, or $11,712 per person, primarily driven by faster growth in both private health insurance and Medicare, according to a new report from the Centers for Medicare and Medicaid Services (CMS).

In comparison, the growth rate for U.S. healthcare spending was 4.2% in 2017 and was the same, 4.6%, in 2016.

CMS actuaries attributed the 2018 rise in spending growth partly to an increase in the “net cost” of health insurance, which refers to the administrative expense of insurers. The sharp rise in health plans’ net cost was principally a result of the reinstatement of the Affordable Care Act’s health insurance tax, which Congress had suspended during 2017.

In contrast to the NHE uptick, the growth in personal health care spending — the actual amount spent on healthcare goods and services — was unchanged at 4.1% in both 2017 and 2018.

“Health care spending growth picked up across all major payers in 2018 as medical prices grew faster, due in part to the reinstatement of the health insurance tax on all health insurance providers,” said Micah Hartman, a statistician in the CMS Office of the Actuary and first author of the CMS report, in a press statement. “However, economic growth outpaced health care spending, and the share of the economy devoted to health care fell.”

Healthcare spending constituted 17.7% of gross domestic product (GDP) in 2018, down slightly from 17.9% in the previous 2 years, the CMS study found.

Growth in per capita NHE increased to 4% in 2018 from 3.5% in 2017 “as faster growth in medical prices more than offset slower growth in the use and intensity of health care goods and services,” the report said.

But GDP per capita grew 4.8% in 2018, nearly a percentage point faster than NHE per capita. In contrast, GDP per capita growth was about even with or lower than NHE per capita growth in the previous 4 years.

Medical price growth accounted for 2.1 percentage points of the 4% growth in per capita spending, or 53%. Growth in the intensity and residual use of healthcare goods and services accounted for 1.3 percentage points (33%), and demographics (age and sex) explained 0.6 percent points (14%) of the increase.

The growth in medical prices in 2018 was the most rapid since 2011, but the growth rate of 2.1% was below the average rate of 3.4% from 2004 to 2007 and the same as the average rate of growth from 2008 to 13, the CMS researchers said. Moreover, the residual use and intensity of services grew only 1.3% in 2018, slower than the rate of 1.6% in 2017.

Analysis of Spending by Payer

Employer spending on healthcare grew by 6.2% in 2018 vs. 4.8% in 2017. This was the largest growth rate since 2003, despite a slight drop in the number of covered employees. Private health insurance spending, about a third of NHE, reached $1.2 trillion, and insurance cost growth increased 5.8%, up from 4.9% in 2017. This was mainly driven by the reinstatement of the insurance tax.

Healthcare spending by households grew 4.4% in 2018 — the same as in 2017. Out-of-pocket spending rose by 2.8%, compared with 2.2% in 2017. The growth in employee contributions to employer-sponsored insurance slowed to 3.4% from 6.8% in 2017.

The federal government saw its spending growth rate accelerate to 5.6% in 2018 from 2.8% the previous year. This was mainly due to faster growth in the federally sponsored portion of expenditures for Medicare and Medicaid.

Medicare spending of $750.2 billion formed 21% of NHE. The growth in Medicare costs accelerated to 6.4% from 4.2% in 2017, although enrollment growth was only 2.6% in 2018.

“Medicare spending on non-personal health care, which includes government administration and the net cost of insurance for Medicare private health plans, was one of the drivers of faster growth in the program in 2018,” the report noted. However, Medicare personal health care spending growth, which doesn’t include administrative expenses, jumped from 4.7% in 2017 to 5.7% in 2018.

Growth in fee-for-service Medicare spending per enrollee increased from 1.5% to 3.6%. CMS attributed this increase largely to growth in spending on physician and clinical services, particularly higher volume and intensity of services and higher spending on physician-administered drugs.

Medicare private health spending (most of it through Medicare Advantage plans) increased 11.8% in 2018, up from 9.9% the previous year. Enrollment in these plans increased by 7.9%, about the same as in 2017. “Medicare private health plans also continued to account for a larger portion of total Medicare spending, at 36 percent in 2018 — a 6-percentage-point increase since 2014,” the report stated.

Medicaid spending was 16% of NHE and hit $597.4 billion in 2018. The Medicaid spending growth rate increased to 3% in 2018 from 2.6% in 2017. In contrast, the Medicaid enrollment growth rate dropped to 1% from 1.4% in 2017, mainly because of national economic growth, the report said. Per enrollee spending growth rose by 2% in 2018, compared to 1.2% in the prior year.

Hospital and Physician Spending

Hospital spending grew at about the same rate in 2018 as in 2017, increasing 4.5% to $1.2 trillion, or 33% of NHE. Hospital prices increased by 2.4%, up from 1.7% in 2017. The growth in total inpatient days was slower in 2018 than in the previous year.

Overall spending for physician and clinical services rose 4.1% in 2018, reaching $725.6 billion, or 20% of NHE. This growth rate represented a slowdown from 4.7% in 2017, and spending growth in this area slowed for the third consecutive year.

The lower cost growth for physician and clinical services was driven by slower growth in spending by private health insurance, other private revenues, and Medicaid. Higher growth in Medicare spending on physician and clinical services partially offset the overall decline in spending growth.

Nonprice factors such as the use and intensity of services contributed to the slowdown, the report said. Prices increased 0.7% in 2018 after growing 0.4% in 2017. However, growth in spending for clinical services rose 6%, outpacing the 3.6% growth in costs for physician services.

Spending on retail prescription drugs increased 2.5% in in 2018 to $335 billion, or 9% of total NHE. The growth in this sector was faster than the 1.4% increase in 2017. Increased spending on new oncology and autoimmune drugs was partially offset by a small decline in price growth and the increased use of generic drugs.

The number of prescriptions dispensed (based on 30-days’ supply) increased 2.7% in 2018, vs. 1.8% in 2017. Retail prices declined by 1%, reflecting a drop in generic prices and slower and relatively low growth in prices of brand-name drugs. However, brand name drugs increased their share of spending from 76.7% to 78.7%.

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