Healthcare spending still growing, but slowly

The United States spent $2.8 trillion – $8,915 per person or 17.2% of the GDP – on healthcare in 2012. Eighty-five percent went to “personal health spending” meaning drugs, devices, and payments to hospitals, doctors, home health, and nursing homes. The remaining 15% went to overhead for insurance companies, government public health programs, research, and major medical equipment and facilities.

Who is footing the bill? Private insurance paid for 33%, Medicare for 20%, and Medicaid for 15% of the $2.8 trillion total. We can also see how groups split the tab: people and households paid for 28%, businesses 21%, federal government 26%, and state governments 18%. Households paid a little more than last year due to higher insurance costs. A post-recession recovery credit that increased the ratio of federal to state funding of Medicaid expired in 2011, so states’ total burden has increased while the federal share has decreased.

Healthcare growth rates have stayed at their current level of 3.7% each year since 2009. Although the recession technically ran from mid-2007 until June 2009, spending growth did not hit its current low until 2009, and it still has not bumped back up, showing a lag between the official recession and healthcare growth rates. A look at private insurance enrollment provides insight: even though there were 12.2 million more people in the United States in 2012 than in 2007, the total number of people enrolled in private health insurance was still 9.4 million fewer in 2012 than in 2007 pre-recession.

During a recession, people who lose  jobs move from private insurance to Medicaid or uninsured. They avoid “optional” healthcare such as check-ups or scheduled surgeries even when they have insurance and on essential care like blood pressure pills when money is tight. Hospitals respond to lower income by investing in fewer pieces of expensive equipment like CT or MRI scanners. Research funding gets cut. So for healthcare, the recession is still a major factor holding down growth.

However, other trends suggest growth is ready to skyrocket when the recession’s effects eventually cease. The final version of the ACA did not make any great contributions to cost control, and most of its provisions, which can be expected to increase health spending, will not take effect until 2014 or later. The serendipitous expiration of patents for several blockbuster drugs (e.g. Lipitor, Plavix, Singular) drove down personal, Medicare, and private insurance spending in 2012, but this is a one-year trend that will not happen again. The first Baby Boomers joined Medicare in 2011 and many more will be joining them over the next 15 years. The fast growth in the number and acuity of services that physicians and hospitals are billing is also a concerning trend. This represents a combination of the temptation to bill more often under fee-for-service, increased use of high-cost providers such as surgical centers, free-standing emergency rooms and urgent cares, and increased use of EMRs which make it easier for providers to document and collect charges for high-acuity care.

Healthcare spending is not slowing down. It’s just growing slower. While overall growth appears to have slowed, a look at the various components reveals this to be a combination of fast and slow growth in different areas, with a post-recession effect due to expire soon.

Marrtin, AB, et al. Health Affairs. 2014; 33 (10): 67-77.

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Laura Medford-Davis, MD