6 Things to Know About U.S. Healthcare Spending Growth
National healthcare spending has accounted for a double-digit share of gross domestic product annually since 1982. Despite a recent period of slow growth, healthcare expenditures are beginning to pick up again and are on track to continue consuming an increasingly large amount of the country's economic resources.
Here are six things to know about healthcare spending in the U.S.
1. In 2012, total U.S. healthcare spending was $2.8 trillion, or $8,915 per person, according to the Medicare Payment Advisory Commission.
2. Personal healthcare spending — expenses for all medical goods and services provided for the treatment of an individual — accounted for 85 percent ($2.4 trillion) of that amount. Hospital care accounted for 37 percent ($882 billion) of personal healthcare spending in 2012.
3. The Congressional Budget Office's 2013 long-term budget outlook report predicted national healthcare spending will increase to approximately 22 percent of the gross domestic product by 2038 under current law. However, projected spending on federal healthcare programs decreased compared with the CBO's estimate the previous year, which projected federal spending for major healthcare programs would equal 8.7 percent of the GDP in 2038. A small amount of that drop resulted from a decline in the projected long-term healthcare cost growth rate.
4. Healthcare spending growth hit an all-time low of 3.6 percent for 2011 and remained slow at an annual rate of 3.7 percent in 2012 and 4 percent during the first 11 months of 2013, according to the Altarum Institute's Center for Sustainable Health Spending and CMS.
5. However, healthcare spending began to pick up last year, growing 5.6 percent year-over-year in the fourth quarter. At the time, that was the highest growth rate recorded since 2004. In the first quarter of 2014, healthcare spending was up 9.9 percent year-over-year, according to the Bureau of Economic Analysis. The White House attributed the spending spike to increased utilization of healthcare services because of expanded coverage from the Patient Protection and Affordable Care Act. Still, because the surge started last year, before the law's major provisions coverage took effect, it seems the recovering economy is also a factor.
6. MedPAC has identified five main factors that drive healthcare spending growth. The first and most significant is new technology, which studies identify as the reason behind anywhere from 38 percent to more than 65 percent of spending growth. Second, the level and growth of healthcare prices have a big impact on healthcare spending. Studies have consistently pointed to price growth as the cause of between 10 percent and 25 percent of healthcare spending growth. Third, the growing market power of hospitals, physicians and other providers — which have been consolidating at a rapid rate — over insurers can lead to higher prices. Fourth, health insurance coverage expansion can drive up spending; one study of an insurance coverage experiment in Oregon found people randomly selected for Medicaid coverage used 25 percent more services than an uninsured control group. Finally, changes in the age and health status of the population — specifically, the aging of the baby boomer population — are major drivers of spending.
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