Healthcare Business News

Growth in U.S. health spending continues at historically slow rate, despite improved economy

By Melanie Evans
Posted: January 6, 2014 - 4:00 pm ET

New federal estimates show that U.S. health spending growth continued to grow at a historically low rate in 2012 even as the economy rebounded.

The overall economy grew significantly faster than healthcare spending, which declined as a share of the nation's gross domestic product to 17.2% from 17.3% the prior year.

In the fourth straight year of slow growth, national health spending in 2012 increased 3.7%, while the overall economy, continuing its rebound from the Great Recession, grew 4.6%, according to newly released estimates by economists and statisticians at the CMS.

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Health spending as a percentage of GDP declined by 0.8%, CMS' data show. The last time such a decline occurred was 1997, said Aaron Catlin, a deputy director of the CMS National Health Statistics Group, on a call with reporters Monday announcing the figures.

U.S. health spending since the recession grew even more slowly than the record-low growth captured in federal estimates of the past few years, the newly released numbers show. Estimates released one year ago reported 3.9% growth in 2009, 2010 and 2011. New data show 3.8% growth in 2009 and again in 2010 and 3.6% growth in 2011.

CMS economist Anne Martin said the recession is largely to blame for the slow growth in health spending, with minor contributions from the Patient Protection and Affordable Care Act. The law cut Medicare payments to hospitals and physicians while increasing costs through provisions such as extending dependent coverage to children up to age 26, the CMS reported in the journal Health Affairs.

The recession's lingering influence on health spending is an unsettled question among economists. There are widespread hopes that relief from fast-rising healthcare costs will be lasting. Policymakers are particularly concerned because of the big increase in the number of baby boomers joining Medicare over the next decade.

Dana Goldman, a health economist and director of the University of Southern California's Center for Health Policy and Economics, said another year of slow growth suggests forces other than the economy are at work. “The persistence of this trend, the more it continues, the less likely it is that it can be explained just by the recession,” he said.

The slow growth overall masked an uptick in spending on hospitals and doctors. Spending for hospital care in 2012 increased by 4.9% as prices and demand climbed, compared with 3.5% the prior year. Prices for physicians dropped in 2012, but demand increased and spending on doctors grew 4% after an increase of 3.5% in 2011. Spending for clinical services increased by 7.1% in 2012 after growth of 6.6% the year before.

The somewhat higher growth in hospital and physician spending could signal an overall healthcare spending rebound after recent efforts to slow those costs, Goldman said. Rising hospital prices also suggest that hospitals are gaining more price leverage as they consolidate, he said.

Medicaid spending increased 3.3%, up from 2.4% in 2011 as states expanded their safety-net programs and increased payments, the Health Affairs paper said.

Consumer out-of-pocket spending increased 3.8%, in part attributable to high-deductible insurance, the CMS officials said. Out of pocket spending increased 3.5% in 2011.

Cuts to hospital and physician Medicare payments under the ACA helped slow Medicare's overall spending growth to 4.8% from the prior year's growth of 5%.

Premiums for privately insured Americans grew 3.2%.

The CMS figures show a slowdown in prescription drug spending, largely as a result of expired patents for popular brand-name drugs. Prescription drug spending increased just 0.4%, after an increase of 2.5% the prior year. Spending for nursing home care also slowed.

Excluding spending for public health and research, healthcare construction and administration, spending for personal medical care increased 3.9%. National health spending includes expenditures for public health and research, healthcare construction and administration.

Follow Melanie Evans on Twitter: @MHmevans

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