National Health Spending Growth Slows in 2016 in Wake of Coverage Expansions, Decline in Drug Spending

The rate of healthcare spending in the United States slowed down last year to levels previously seen between 2008-2015, driven by much slower growth in spending for retail prescription drugs, as well as hospital care and physician and clinical services. All 3 major payers—private health insurance, Medicaid, and Medicare­—also saw lower rates of spending growth.

The 2016 analysis from the Office of the Actuary at CMS was published online Wednesday in Health Affairs and will appear in its January 2018 edition.

The report estimates that in 2016, healthcare spending grew at a rate of 4.3% to $3.3 trillion, or $10,348 per person. That’s down from 5.8% in 2015 and 5.1% in 2014.

Despite the slower growth in 2016, healthcare spending still increased faster than the GDP growth rate. The share of the economy devoted to healthcare rose slightly from 17.7% in 2015 to 17.9% last year.

During a call explaining the results, Micah Hartman, a statistician with CMS and an author of the report, said there was more spending and faster growth in 2014 and 2015 as more people gained health insurance coverage through the Affordable Care Act (ACA) and through expanded coverage through the Medicaid program.

Slower growth in total healthcare spending in 2016 was primarily due to a falloff in retail prescription drug spending (a result of fewer new drugs and a decline in spending on hepatitis C medications, among other reasons), hospital care, and physician and clinical services.

For private health insurance and Medicaid, the slower growth was influenced by decelerated enrollment growth, while Medicare spending slowed because of lower per enrollee growth rates.

Retail prescription drugs

Retail prescription drug spending increased just 1.3% last year, following much stronger growth rates in 2014 (12.4%) and 2015 (8.9%). Total expenditures reached $328.6 billion.

The drop-off in 2016 can be attributed 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.

Last year, 22 new medicines were approved, compared with 45 in 2015 and 41 in 2014.

Hospital spending

Hospital spending increased 4.7%, reaching $1.1 trillion, and represented 32% of overall healthcare spending. That is down from 5.7% in 2015.

There were mixed reasons for the slower growth in hospital spending.

Overall use and intensity of services was 2.3%, lower than the increase of 3.4% in 2015, due to the effects of the ACA. Slower growth was due in part to slower enrollment growth and was partly offset by faster growth in hospital prices, which accelerated slightly from 0.9% in 2015 to 1.2% last year.

For major payers, Medicare spending growth was flat for the fourth consecutive year.

Out-of-pocket hospital spending growth jumped in 2016 after 2 years of declines because of enrollment in consumer-directed health plans, which tend to have higher co-payments and deductibles than other forms of insurance.

Medicaid and private health insurance spending growth slowed, mainly as the result of ACA enrollments in 2014 and 2015. Medicaid hospital spending also fell because of a decline in supplemental payments to hospitals.

Physician and clinical services

Physician and clinical services spending slowed from a growth rate of 5.9% in 2015 to 5.4% in 2016. Total expenditures in this category reached $664.9 billion, or 20% of overall healthcare spending.

Spending growth for clinical services (8.2%) outpaced growth in spending for physician services (4.6%) for the twelfth consecutive year. The growth in clinical services spending was driven primarily by continued strong growth in spending for freestanding ambulatory surgical and emergency centers.

On a per capita basis, national health spending grew at 3.5%, reaching $10,348 last year. Changes in the age and gender mix of the population accounted for 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.

Major payers

Private health insurance rose 5.1% to $1.1 trillion, slower than 6.9% growth in 2015. Private health insurance continued to be the largest payer for healthcare goods and services in the United States in 2016—accounting for just over one-third of total healthcare spending.

Medicare spending rose 3.6% to $672.1 billion, down from 4.8% growth in 2015, accounting for 20% of total healthcare expenditures.

Medicaid expenditures rose 3.9% to $565.5 billion in 2016, accounting for 17% of total national healthcare spending.

During the years of the initial impacts of the ACA expansion, Medicaid spending rose 9.5% last year and 11.5% in 2014 as individuals gained coverage. Last year, on a per enrollee basis, Medicaid spending increased 0.9%, down from 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.

Reference

Hartman M, Martin A, Espinosa N, Catlin A, The National Health Expenditure Accounts Team. National health care spending in 2016: spending and enrollment growth slow after initial coverage expansions [published online December 6, 2017]. Health Aff. doi: 10.1377/hlthaff.2017.1299.