Slower Growth in Health Care Spending Continued in 2011

The CMS Actuary has found that health care spending continued to grow slowly in 2011. In an article published in the January, 2013 issue of Health Affairs, the Actuary analyzed changes in various categories of health care spending and noted that the recession continued to dampen personal spending because many people remain uninsured. Nationally, total health care spending in 2011 was $2.7 trillion, up 3.9 percent from 2010. Expenditures for health care grew at about the same rate as the gross domestic product (GDP), which was 4.0 percent. As a result, the percentage of the GDP attributable to health care remained at 17.9 percent. Growth in spending was not evenly spread among types of services or categories of payers, however.

The number of people with private health insurance grew by 1 million in 2011, largely because 2.7 million young adults were added as dependents to their parents’ health insurance policies due to the requirement of the Patient Protection and Affordable Care Act (PPACA) (P.L. 111-148) to cover dependents up to age 26. This growth followed a drop of 11.2 million in the number of insured from 2007 to 2010. Spending for premiums grew 3.8 percent in 2011; the net ratio of premiums to benefits remained constant at 12.3 percent. An increase in the cost of group health insurance was offset by a decline in the net cost of individual policies resulting from the implementation of the medical loss ratio requirement.

Spending on physician and clinical services grew more quickly in 2011 than in 2010, reflecting both an increase in doctor visits and increased acuity of services. Expenditures for clinical services grew twice as much as for physician services, 7.2 percent and 3.6 percent, respectively. The growth in spending for hospital services declined.

Among payers, Medicare spending grew faster because of a temporary increase in payment rates for skilled nursing facilities and greater use of physician services and clinical services. In addition, Medicare enrollment began to grow as the first baby boomers reached age 65. The federal share of Medicaid spending declined, and the state share grew, because the temporary increase in the federal medical assistance percentage (FMAP) under the American Reinvestment and Recovery Act (P.L. 111-5) expired in 2011.

The growth of expenditures for prescription drugs slowed dramatically. An unusually high number of patents for brand name drugs expired, so that new generics became available. This accelerated the increase in the use of generic drugs generally. The 50 percent discount on Part D prescription drugs for Medicare beneficiaries who reach the “donut hole” reduced consumer spending on drugs. The increase in prescription drug rebates under PPACA further lowered net expenditures.