Growth in medical prices inched healthcare spending higher in 2018

PER CAPITA SPENDING on healthcare increased by 4% in 2018, up from 3.5% the year before, as faster growth in medical prices more than offset slower growth in the use and intensity of healthcare goods and services, according to the latest annual report by the CMS Office of the Actuary.

The medical price growth of 2.1%, up from 1.3% in 2017, was the fastest since 2011, though it was slower than the average annual rate of 3.4% from 2004 to 2007, according to the report published last week in Health Affairs.

In another notable finding, the net cost of private health insurance grew 15.3% in 2018, up from 9.5% in 2017, the biggest increase since 2003. The actuaries said this was driven largely by the temporary reinstatement of the Affordable Care Act’s health insurance tax, which was suspended by Congress this year.

That could give a boost to lobbying efforts by health insurers and employer groups to abolish the tax.

The healthcare spending growth rate ticked up 4.6%, with spending hitting $3.6 trillion in 2018, compared with 4.2% in 2017. Healthcare consumed 17.7% of gross domestic product, compared with 17.9% the year before. Earlier this year, the CMS actuaries projected that healthcare’s share of GDP will rise to 19.4% of GDP in 2027.

“However, economic growth outpaced healthcare spending and the share of the economy devoted to healthcare fell,” said Micah Hartman, a statistician in the Office of the Actuary who was the lead author of the study.

But other observers argued that healthcare spending growth remains too high, with inflation-adjusted growth of 2.5% only slightly behind

GDP growth of 2.9%. They say that while efforts by payers and providers to control costs may have moderated spending increases, there is still a long way to go to make healthcare affordable and worth the money.

“I suppose it’s a good sign that healthcare’s percentage of total GDP dropped. It’s not squeezing out as much spending on other things, but it’s still squeezing out a lot,” said Steve Wojcik, vice president of public policy for the National Business Group on Health.

“There is ample evidence we’re still not getting the value from the healthcare system that we ought to in terms of improvements in health outcomes, given how much we’re spending,” said Katherine Baicker, dean of the University of Chicago’s Harris School of Public Policy. “Nothing in that story has changed.”

Spending on hospital care, which accounted for 33% of total spending in 2018, grew 4.7% to reach $1.2 trillion in 2018, slightly up from 4.5% the year before. Hospital prices increased 2.4%, compared with 1.7% in 2017, while growth in inpatient days was slower than in 2017—0.7% versus 1.7%.

Expenditure growth for physician and clinical services decelerated from 4.7% in 2017 to 4.1% last year, even though prices rose 0.7% in 2018.

Spending on retail prescription drugs—not including drugs administered in physicians’ offices and hospitals—rose 2.5% to $335 billion in 2018, compared with 1.4% the year before. The actuaries said increased spending on new oncology and auto-immune drugs was partly offset by a 1% decline in price growth and a continued increase in use of generic drugs.

Despite the increase in use of generics, most prescription spending continued to go to brand-name drugs. The brand-name share of spending rose from 76.7% to 78.7% in 2018.

Total and per-enrollee insurance spending increased across private plans, Medicare and Medicaid from 2017 to 2018.

Private insurance spending rose 5.8% to $1.2 trillion, from 4.9%. Per-member

growth was 6.7%, up from 4.7%.

Medicare spending increased 6.4% to $750 billion, up from 4.2%. The per-enrollee increase was 3.7%, compared with 1.6% the year before.

Federal and state Medicaid spending edged up by 3% to $597 billion, from 2.6%. Per-enrollee growth was 2%, up from 1.2% the year before. Spending increases were moderated by a slowdown in enrollment growth and slower rate increases for Medicaid managed care.

The number of uninsured Americans grew by 1 million for the second year in a row, reaching 30.7 million in 2018. As part of that, private health insurance enrollment dipped by 0.8% in 2018 due to declines in enrollment in individual plans and employer-sponsored plans.

The actuaries said individual plan enrollment decreased by 1.4 million as average premiums rose. Enrollment in employer plans dipped by 0.2% as employees facing higher premium contributions increasingly turned down coverage.

The increase in the number of uninsured people may have contributed to slowed growth in use and intensity of healthcare services, the actuaries said.

But it also boosted healthcare costs for everyone else, as providers shifted the uncompensated-care costs to paying patients.

“The fact that 30 million Americans are uninsured means someone has to pay for their care, and that falls on the 300 million who have insurance,” said Gerard Anderson, a health policy professor at Johns Hopkins University.

Wojcik said employer efforts to reduce costs through value-based programs such as accountable care organizations, centers of excellence and high-performing networks may have contributed to keeping total healthcare spending growth under 5% last year.

But his organization’s members fear they won’t be able to hold the line due to increasing market consolidation by hospitals and physicians. “Our members expect 2019 data will show continued acceleration of spending on hospital care,” he said. ●

Despite the increase in use of generics, most prescription spending continued to go to brand-name drugs. The brandname share of spending rose from 76.7% to 78.7% in 2018.