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CMS report demonstrates slowed US healthcare spending in 2012

Published: 1/7/2014
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National health expenditure in the United States increased 3.7% y/y in 2012, the second consecutive year below overall economic growth.



IHS Global Insight perspective

 

Significance

Overall national health expenditure (NHE) grew by 3.7% year on year (y/y) in 2012, slightly slower than economic growth, as NHE as a share of gross domestic product fell to 17.2% in 2012.

Implications

The reduction in growth was linked to subdued growth in prescription drug spend, nursing home expenditure, private health insurance costs, and Medicare expenditure. Medical price inflation slowed down even further from 2.4% in 2011 to 1.7% in 2012, below the overall consumer price index (2.1%) for that year.

Outlook

ACA's policies are ushering in increased efficiency to the US healthcare system, while shifting the framework from one that encourages over-referrals and inflated prices to one that rewards improved outcomes at reduced costs; however it remains to be seen if subdued growth in health expenditure will continue through 2014, when millions of newly insured US citizens will have access to health coverage.

The Centers for Medicare & Medicaid Services (CMS) Office of the Actuary has released its latest health expenditure figures, demonstrating continued subdued growth in healthcare spending in 2012. According to the report, overall national health expenditure (NHE) grew by 3.7% year on year (y/y) in 2012, slightly slower than economic growth, as NHE as a share of gross domestic product fell from 17.3% in 2011 to 17.2% in 2012. A summary of the report has been published in the journal Health Affairs and can be found here.

The reduction in growth was linked to a subdued growth in prescription drug spend, nursing home expenditure, private health insurance costs, and Medicare expenditure. Private health insurance growth declined slightly from 3.4% in 2011 to 3.2% y/y in 2012, and despite an increase in Medicare enrolment in 2012, the programme's expenditure growth rate declined slightly to 4.8% y/y in 2012, compared to 5.0% in 2011. By contrast, the Medicaid programme recorded slightly increased growth in 2012 to 3.3%; however according the CMS, this was subdued due to a recovering economy and state-based initiatives to control costs. Growth in spending per enrolee was 0.7% for Medicare, 1.3% for Medicaid, and 2.7% for private health insurance in 2012, a significant decline from growth rates seen between 1999 and 2008 of 7.4%, 2.8%, and 7.4% respectively.

Healthcare Expenditure Growth Rate 2012 (y/y)

Private Health Insurance

Prescription Drugs

Nursing Home

Medicare

Medicaid

Out-of-Pocket

3.2%

0.4%

1.6%

4.8%

3.3%

3.8%

Source: CMS Office of the Actuary

Prescription drug spend continued to experience subdued growth as the impact of the patent cliff and increased generic uptake continued to affect expenditure. According to the report, nursing home expenditure growth also declined significantly in 2012 from 4.3% y/y in 2011 to 1.6% y/y in 2012, however this was due to a one-time Medicare rate adjustment for skilled nursing facilities. This was offset by accelerated growth in expenditure for hospital, physician, and clinical services as well as out-of-pocket spend in 2012. Medical price inflation however has slowed down even further from 2.4% in 2011 to 1.7% in 2012, below the overall consumer price index (2.1%) for that year.

Outlook and implications

This is the fourth consecutive year that the US demonstrated reduced growth in healthcare expenditure. According to CMS officials, the reduced growth in NHE is attributed to new provisions under the Affordable Care Act (ACA) that help control costs while ensuring quality of care is maintained. Many of the law's major provisions however came into effect in 2013 and 2014; it will be some time before a clearer understanding of how healthcare reform is impacting healthcare expenditure in the US is determined.

The new CMS expenditure data is in line with a report published by the Council of Economic Advisers (CEA) in November 2013 that suggested that ACA is likely behind the trends towards reduced healthcare spending. Medical price inflation, according to the CMS and CEA report, has demonstrated reduced growth rates, the lowest in 50 years. Increases in per capita health spending was only partially driven by higher prices in 2012, compared to 2011 where it was mainly driven by increased medical price inflation. However this trend was mostly attributed to reductions in price reported in the pharmaceutical industry, as the patent expiry of major blockbuster drugs increased the availability of cheaper generic versions of commonly utilised treatments.

This is the second consecutive year that NHE as a share of GDP has declined, albeit modestly, supporting claims that ACA in the long run may help rein in escalating healthcare costs that have contributed to the US federal deficit. ACA's policies are ushering in increased efficiency to the US healthcare system, while shifting the framework from one that encourages over-referrals and inflated prices to one that rewards improved outcomes at reduced costs. ACA's initiatives to decrease hospital readmissions for Medicare beneficiaries has led to a reduction in thousands of readmissions between January 2012 and August 2013, approximately 130,000 compared to previous years, significantly reducing costs for the programme. It remains to be seen if subdued growth in health expenditure will continue through 2014, when millions of newly insured US citizens will have access to health coverage.

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