Growth in Health Care Spending Continued to Slow in 2013

In 2013, health care expenditures in the United States grew to $2.9 trillion, up 3.6 percent from 2012. The share of gross domestic product (GDP) attributable to health care spending has remained stable since 2009, at 17.4 percent. Economists and statisticians at the CMS Office of the Actuary (OACT) reported that health care spending grew more slowly in 2013 than in 2012, continuing a pattern in which increases have not exceeded 4.1 percent since 2009.

On a per capita basis, the rate of growth of national health care expenditures declined from 3.4 percent in 2012 to 2.9 percent in 2013. The growth in health care spending is consistent with the rate of growth in the economy as a whole, which has averaged 3.9 percent since 2010. This pattern was a change from growth between 2008 and 2011, when health care expenditures grew faster than the national economy.

Factors Affecting Growth

Health care spending is affected by both economic, such as inflation in prices generally and medical prices specifically, and noneconomic factors, such as changes in the composition of the population by age and gender. The first baby boomers became eligible for Medicare in 2012, resulting in a large increase in Medicare enrollment Beneficiaries who recently turned 65 tend to be healthier than the average Medicare beneficiary, and this demographic shift may curb increases in expenditures.

The authors of the OACT report, published in Health Affairs on December 3, 2014, noted that payment adjustments under the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) exerted downward pressure on spending. Specifically, the reduction of Medicare Advantage benchmark payments and productivity-related adjustments to fee-for-service payments increased rebates for Medicaid prescription drugs, and the medical loss ratio (MLR) requirement helped to lower spending. Changes that countered the downward pressure include the temporary increase in Medicaid payments to primary care physicians, increased coverage of Part D drugs as the donut hole shrinks, and early Medicaid expansion increased spending. In addition, the budget sequestration required by the Budget Control Act of 2011 (P.L. 112-25) reduced federal spending for Medicare, clinical research, and other federal programs by 2 percent beginning in March 2013.

Cost of Coverage

Health insurance premiums, which account for one-third of health care spending, grew by 2.8 percent, a lower rate than previous years. The authors believe that the MLR, rate review, and other insurance market reforms required by the ACA and the increasing popularity of high-deductible health plans slowed the growth of premium expenditures. As increases in the prices of medical services have slowed, so have the increases in insurers’ expenditures.

Prescription Drugs

Spending for prescription drugs accelerated in 2013, rising 2.5 percent, compared to 0.5 percent in 2012. The low growth in 2012 was largely caused by the expiration of patent protection for certain popular drugs that had generated $35 billion in revenue each year; the generic drugs that became available were much less expensive. The percentage of prescriptions filled with generic drugs, excluding branded generics, grew from 73 percent in 2011 to 80 percent in 2013.

Although the increased use of generics reduced prescription drug spending, the rising prices of specialty drugs outweighed the effects of generics. Because the FDA approved more new drugs in 2013 than it had in any of the preceding 10 years, there were more specialty drugs on the market. Prices for existing specialty drugs continued to rise as well. Specialty drugs comprise 1 percent of prescriptions dispensed, but bring in almost 28 percent of prescription drug revenue. Medicare spending for drugs under the Part D prescription drug benefit rose 10.7 percent. Private insurance payments grew more slowly because of the increased use of tiered copayment structures, which increase the cost sharing requirements for more expensive drugs.

Anticipating the Future

The health care landscape has changed dramatically in 2014. Many people are newly insured or have more comprehensive coverage, and, in expansion states, many people are newly eligible for Medicaid. These individuals may use more services. The forces that depress the growth of Medicare spending, in particular, may continue to operate and the use of high-deductible health plans may continue to grow. Therefore, the authors concluded that whether the slowdown in spending growth will continue was an open question.