National health spending grows under Affordable Care Act

Health care spending in the United States grew at a rate of 5.3% to $3 trillion, or $9,523 per person, according to a new analysis from the Office of the Actuary at the Centers for Medicare & Medicaid Services. The growth in health spending was primarily driven by coverage expansions under the Affordable Care Act (ACA), particularly for private health insurance and Medicaid, as well as by rapid growth in spending on retail prescription drugs, fueled in part by new drug treatments for hepatitis C, according to the report. The previous five years saw historically low growth, which averaged 3.7%. In 2013, growth was 2.9%.

Health spending's share of the nation's gross domestic product (GDP) also increased from 17.3% in 2013 to 17.5%in 2014. The coverage expansions under the Affordable Care Act contributed to an 8.7 million person increase in health insurance coverage in 2014 compared to 2013. As a result, the insured share of the population increased—from 86% in 2013 to 88.8% in 2014—the highest share since 1987.

Total private health insurance spending growth accelerated from 1.6% in 2013 to 4.4% in 2014. The growth rate reflected an additional net increase of 2.2 million people with private health insurance coverage and faster growth in 2014 benefit spending for prescription drugs, physician and clinical services, and hospital care, compared to 2013. Medicaid spending grew at a rate of 11% in 2014 compared to 5.9% in 2013. The 2014 growth rate reflected provisions of the ACA that expanded eligibility and enhanced payments to primary care providers. Total Medicaid enrollment increased by 7.7 million in 2014, due mainly to ACA expanded eligibility.

"Two main factors were responsible for health spending growth in 2014—coverage expansion associated with the Affordable Care Act and faster growth in prescription drug spending," said Anne B. Martin, an economist in the Office of the Actuary at CMS and lead author of an article in Health Affairs. "However, it is unknown how these drivers of health care spending will affect trends over the next few years as the new health insurance landscape continues to evolve."

Although the ACA was enacted in 2010, its most significant provisions went into effect in 2014. The expansion of Medicaid eligibility, as well as health insurance premium tax credits and cost-sharing subsidies paid by the federal government, contributed to federal government health care spending growth of 11.7% in 2014—8.2 percentage points faster than in 2013. Correspondingly, the federal government's share of health care spending increased from 26% in 2013 to 28% in 2014.

Other provisions of the ACA that took effect prior to 2014 continued to affect overall health spending—including changes to Medicare and Medicaid provider payments, increased Medicaid prescription drug rebates, reductions to the size of the Medicare Part D coverage gap, prescription drug industry fees, and implementation of the medical loss ratio requirement for private insurers.

Major payers where spending growth increased faster (from 2013) included:

Private health insurance (4.4%): spending grew more quickly in 2014 than in 2013, increasing to $991.0 billion, and accounted for one-third of total national health care expenditures. This was a faster growth rate than the 1.6% rate in 2013. Contributing factors include increased enrollment and faster growth in spending for retail prescription drugs, physician and clinical services, and hospital care. Upward pressure on private health insurance spending growth also reflected changes associated with the ACA, such as the introduction of Marketplace plans, health insurance premium tax credits, health insurance industry fees, and mandated changes to benefit designs. Per enrollee private health insurance spending increased 3.2% in 2014.

Medicaid expenditures (11%): spending reached $495.8 billion in 2014, accounting for 16% of total national health expenditures. Faster growth in spending, from 5% growth in 2013 to 11% in 2014, was driven by ACA-related eligibility expansion as twenty-six states plus the District of Columbia provided coverage for individuals with incomes of up to 138% of the federal poverty level. Out of 7.7 million total new Medicaid enrollees in 2014, 6.3 million were newly eligible under the ACA. Spending per enrollee declined by 2% in 2014 because the newly eligible were generally adults and children, who are typically lower-cost individuals.

Medicare spending (5.5%): growth increased in 2014 to 5.5%-compared to 3% growth in 2013-and reached $618.7 billion. This acceleration was primarily attributable to faster growth in spending for prescription drugs, physician and clinical services, and government administration and the net cost of insurance (particularly for Medicare Advantage). Per enrollee Medicare spending turned around from a negative 0.2% in 2013 to 2.4%in 2014.

Major goods and services with faster spending growth (over 2013) included:

Retail prescription drugs (12.2%) spending reached $297.7 billion in 2014. The 12.2% increase follows a low growth rate of 2.4% a in 2013 and represents the largest increase since 2002. The strong growth in prescription drug expenditures in 2014 was caused by increased spending on new medicines (particularly for specialty drugs such as those used to treat hepatitis C), a less pronounced impact from patent expirations than in previous years, and price increases for brand-name drugs. The single largest driver of growth in specialty drug spending in 2014 was the impact of new treatments for hepatitis C, which contributed $11.3 billion in new spending.

Physician and clinical services (4.6%): spending increased from a growth rate of 2.5% in 2013 to 4.6% in 2014, while total spending climbed to $603.7 billion. Spending for Medicaid physician and clinical services-which increased 22.8% in 2014, compared to 11% in 2013—was influenced by expanded Medicaid enrollment under the ACA and increased primary care provider fees. Faster private health insurance spending also contributed to the acceleration, increasing 1.2% in 2014 after a decline of 0.1% in 2013.

Hospital spending (4.1%): expenditures reached $971.8 billion in 2014, an increase of 4.1%, which was higher than the growth of 3.5%for the previous year. The higher growth rate is attributable in part to increased use and intensity of hospital services due to coverage expansion, which was reflected in the faster growth in Medicaid and private health insurance spending. -by Rebecca Zumoff