Healthcare Spending Growing at Slower Than Expected Rate

June 22, 2017 - Expenditures on healthcare grew at a historically low rate between 2009 and 2013, according to a recent report, defying the conventional wisdom that healthcare spending has skyrocketed. 

A Robert Wood Johnson Foundation report looked at three main areas of healthcare spending: the national health expenditures (NHE), growth of ACA marketplace premiums, and spending growth in the Medicaid program.

The report contrasted actual growth rates measured in 2017 with predicted growth rates from 2010. 

Overall increases in NHE was an adjusted 4.3 percent per year between 2009 and 2013. This beat the original forecast of 6.5 percent. Even with this slower than projected growth, the NHE continues to be well above other industrialized nations at 18.3 percent of the nation’s GDP.

The lower than projected increases were found across the healthcare spending spectrum. For example, Medicare was at a 4.5 percent growth in 2017, versus the 5.8 percent 2010 projection.

Medicaid was at 6.5 percent growth in 2017, the report found, versus its 9.9 percent 2010 projection. 

Private Insurance was also reported at a 4.4 percent growth in 2017, versus its 6.6 percent 2010 projection. 

“Other” health spending was found to be at 3.1 percent in 2017, versus its 5.8 percent 2010 projection.  “Other” health spending was defined as spending on the Children’s Health Insurance Program, Department of Defense and Veterans Affairs health programs, public health activity, and health infrastructure investments.

The report cautioned that the lower than projected increases do not mean the healthcare spending situation is solved. Future healthcare spending relies heavily on continued economic growth, as well as consumer and employer willingness to accept higher premium rates and greater out-of-pocket costs. 

The report did address ACA marketplace premium increases, finding that they stemmed from a variety of factors such as geography and competition.

“Though some markets did experience premium increases of 25 percent or more, the broader national evidence shows that premium growth has varied and has remained low in many states and substate regions, particularly in more populated areas,” said the report. 

Competition among plans was a major factor in premium increases. Areas showing the lowest premium increases typically had multiple payer exchanges versus geographic areas with less competition.  Markets with six or more plans had growth rates which averaged 5 percent, versus areas with minimal competition of two or less insurers, with an average growth rate of 29.8 percent. 

Provider concentration also led to higher premiums. In markets with limited providers or narrow provider systems, premium rates trended higher due to a lack of leverage by payers. The report warned that this provider concentration would continue to influence premiums, despite any possible ACA repeal.

The modest growth in Medicare and Medicaid spending per enrollee has been mainly attributed to increased enrollment. This flat growth expense occurred both before and after ACA expansion.   Between 2007 and 2013, Medicaid spending growth averaged 5.7 percent per year, while enrollment increased 3.9 percent annually and spending per enrollee increased 1.7 percent annually. 

Aggregate Medicaid spending growth between 2014 and 2019 was projected to be 5.8 percent. Additionally, enrollment was projected to increase 2.7 percent per year and spending per enrollee projected for three percent.

The growth in Medicaid enrollment is not exclusively tied to the ACA Medicaid expansion, but spread out over several factors.  

First among them is the effect of an aging population and retiring baby boomers. Second, is the impact an aging population has on the number of qualifying disabled individuals. The third factor is economic, with an increased number of low income people over the past decade who qualify for coverage.   

This low-income boost was impacted in part by the 2007 to 2009 recession, but also the lingering under-employment afterwards.

A combination of these demographic increases and Medicaid expansion has contributed to enrollment-driven spending increases in Medicaid.

Even with these conditions, the 1.7 percent growth in Medicaid spending from 2007 to 2013 was still below NHE (3.1 percent) and the consumer price index (2.1 percent). 

Future projections up to 2019 show a similar picture, with spending per Medicaid enrollee increasing by three percent. This was still lower than the increase in NHE per capita (4.6 percent) and GDP per capita (3.2 percent), though greater than the consumer price index (1.8 percent).

“Although health expenditures are growing more slowly than in the past, they are still growing faster than the economy,” the report concluded. “This means pressure will continue on federal and state budgets and require either program cuts or new revenues. Moreover, most families will see health care costs increasing faster than wages and salaries.”