Home Health Policies: CMS Releases 2014 National Health Expenditures

Aggregate health expenditures increase as millions gain coverage and prescription drug costs increase; spending growth remains below rates seen prior to the Affordable Care Act

In 2014, per-capita health care spending grew by 4.5 percent and overall health spending grew by 5.3 percent, a study by the Office of the Actuary at the Centers for Medicare & Medicaid Services (CMS) published today as a Web First by Health Affairs. Those rates are below most years prior to passage of the Affordable Care Act. In addition, consumer out-of-pocket spending grew by only 1.3 percent in 2014, as compared to 2.4 percent growth in 2013, reflecting the increased number of individuals with health coverage.

The report concludes that the increase in spending growth from 2013 was primarily driven by millions of new people with health insurance coverage a result of the Affordable Care Act and by rapidly rising prescription drug costs. Overall, spending on prescription drugs grew by 12.2 percent in 2014, compared to 2.4 percent growth in 2013, fueled largely by spending for new medicines, particularly for specialty drugs such as those used to treat hepatitis C. On a per-enrollee basis, overall spending increased by 3.2 percent in private health insurance and 2.4 percent for Medicare and decreased by 2.0 percent in Medicaid.

“Millions of uninsured Americans gained health care coverage in 2014,” said CMS Acting Administrator Andy Slavitt,” And still, the rate of growth remains below the level in most years prior to the coverage expansion, while out-of-pocket costs grew at the fifth lowest level on record.”

The Affordable Care Act allowed 8.7 million individuals to gain coverage in 2014 compared to 2013. As a result, the insured share of the population increased from 86.0 percent in 2013 to 88.8 percent in 2014, the highest share since 1987, according to the authors.

Overall, health care spending grew 1.2 percentage points faster than the overall economy in 2014, resulting in a 0.2 percentage-point increase in the health spending share of gross domestic product – from 17.3 percent to 17.5 percent. In the decade prior to the Affordable Care Act (2000-2009), health care spending grew by an average of 6.9 percent annually, 2.8 percentage points faster than GDP.

“Today’s report reminds us that we must remain vigilant in focusing on delivering better health care outcomes, which leads to smarter spending, particularly as costs increase in key care areas, like prescription drugs costs,” added Slavitt.

Additional highlights from the report:

• Total private health insurance expenditures (33 percent of total health care spending) reached $991.0 billion in 2014, and increased 4.4 percent, faster than the 1.6 percent growth in 2013 (the slowest rate since 1967). The faster rate of growth reflected the impacts of expanding coverage through Marketplace plans, health insurance premium tax credits, new industry fees, and changes to benefit designs. Per-enrollee spending increased by 3.2 percent in 2014. Average growth in per-enrollee spending was 7.4 percent from 2000-2009.
• Medicare spending, which represented 20 percent of national health spending in 2014, grew 5.5 percent to $618.7 billion, a faster increase than the 3.0 percent growth in 2013. The 2014 rate of growth was driven by increased spending growth for retail prescription drugs and in Medicare Advantage. Per-enrollee spending increased by 2.4 percent. Average growth in per-enrollee spending was 7.0 percent from 2000-2009.
• Medicaid spending accounted for 16 percent of total spending on health and grew 11.0 percent in 2014 to $495.8 billion, a faster increase than the 5.9 percent growth in 2013.  Medicaid growth in 2014 was driven by coverage expansion under the Affordable Care Act, as 26 states plus the District of Columbia provided coverage for individuals with incomes of up to 138 percent of the federal poverty level.  An estimated 6.3 million newly eligible enrollees were added to Medicaid in 2014. Per-enrollee spending decreased by 2.0 percent.
• Out-of-pocket spending (which includes direct consumer payments such as copayments, deductibles, and spending not covered by insurance, excluding premiums) grew 1.3 percent in 2014 to $329.8 billion, slower than annual growth of 2.1 percent in 2013. The slowdown in 2014 was influenced by the expansion of insurance coverage and the corresponding drop in the number of individuals without insurance.
• Retail prescription drug spending accelerated in 2014, growing 12.2 percent to $297.7 billion, compared to 2.4 percent growth in 2013. Rapid growth in 2014 was due to increased spending for new medicines (particularly for specialty drugs such as those used to treat hepatitis C), a smaller impact from patent expirations, and price increases for brand-name drugs. Private health insurance, Medicare, and Medicaid spending growth for prescription drugs all accelerated in 2014.

In 2014, households and the federal government accounted for the largest shares of spending (28 percent each), followed by private businesses (20 percent), and state and local governments (17 percent). The federal government share increased from 26 percent in 2013 due mainly to Medicaid expansion (which was financed 100 percent by the federal government) and health insurance premium tax credits.

The OACT report will appear at http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsHistorical.html

An article about the study also being published on December 2, 2015, by Health Affairs as a Web First http://www.healthaffairs.org and will also appear in the journal’s January issue.