What are the culprits behind the sharp rise in health spending?

Healthcare spending is growing, and that should be a concern for Americans, but the cause of the sharp rise in healthcare spending isn't the price of health services, according to a Think Tank piece in The Wall Street Journal written by Drew Altman, president and CEO of Kaiser Family Foundation.

Continuing a growth trend, health spending was up 5.6 percent in December 2014 compared to the previous year, and it was up 4.5 percent in December 2013 compared to the preceding year, according to a recent analysis from Altarum Institute's Center for Sustainable Health Spending.

The analysis is based on preliminary government data. If the numbers hold true, healthcare spending in 2014 would mark the biggest jump since before the recession, according to Bloomberg.

The rise in health spending in 2014 wasn't a surprise since millions of Americans gained health insurance through the Patient Protection and Affordable Care Act exchanges, expanded state Medicaid programs and new jobs created by employers as the economy improved. "All three together are driving the coverage and presumably the spending," Paul Hughes-Cromwick, senior economist at Altarum, told Bloomberg.

But utilization and demand is only one part of the equation. The price of health services is the other part, and providers face pressure to keep the prices they charge in check. Recent figures from the Altarum Institute suggest hospital prices reached a 16-year low in December 2014, even though healthcare prices ticked up 1.8 percent between 2013 and 2014.

Drug prices are also driving some of the increase in health spending. Drug prices grew 6.3 percent between 2013 and 2014. However, rising drug prices are not a main contributor to an overall increase in health spending, as they only make up 10 percent of national health spending, according to Mr. Altman.

However, healthcare services may be part of equation, and that is evidenced by hiring in the industry, according to Bloomberg. Since mid-2013, total job growth in the U.S. economy outpaced jobs added in the medical industry, but that trend reversed course in the fourth quarter of 2014, with preliminary data in January matching the pace of overall job creation, according to Bloomberg.

Although adding jobs is a strong indicator that there is more demand for medical care, that is not certain, according to Mr. Hughes-Cromwick from Altarum. "The health sector is so strange, you never can rule out these extremes, where hiring is jumping and utilization isn't."

More articles on healthcare spending:

Hospital price growth at lowest rate in more than 16 years
HHS pushes to reform oncology care model
15 things for healthcare leaders to know about Obama's 2016 budget 

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