Health and Science

Obamacare, drugs spur higher health-care inflation rate

Obamacare 'growing pains': Peter Orszag
Obamacare 'growing pains': Peter Orszag

Annual national health spending hit $3 trillion for the first time in 2014, as a half-decade of historically low growth in the sector's inflation came to an end due both to full implementation of Obamacare that year and a sharp increase in spending on retail prescription drugs.

Overall health spending rose by 5.3 percent in 2014, according to a report issued Wednesday by the Office of the Actuary at the federal Centers for Medicare and Medicaid Services.

That contrasts with a 3.7-percent average inflation rate for health spending in the previous five years — and just a 2.9-percent growth rate in 2012.

Feverpitched | Getty Images

That said, the higher health spending growth rate seen last year was still lower than in most years seen before the Affordable Care Act began being implemented in 2010, CMS noted. From 2000 to 2009, health-care spending grew by an average of 6.9 percent each year.

A top federal health official predicted that the newly sped-up overall health inflation rate will be "temporary," and noted that per-enrollee spending in private insurance and government coverage plans grew modestly in 2014.

Millions of uninsured Americans gained health coverage in 2014. And still, the rate of growth remains below the level in most years prior to the coverage expansion, while out-of-pocket costs grew at the fifth-lowest level on record.
Andy Slavitt
acting administrator of CMS

U.S. health spending per person in 2014 stood at $9,523, which is 4.5 percent higher than last year, according to the Actuary Office's report.

Health spending now represents 17.5 percent of gross domestic product, up from its 17.3-percent share in 2013. Health spending routinely rises faster than overall spending.

"Two main factors were responsible for health spending growth in 2014 — coverage expansion associated with the Affordable Care Act (ACA) and faster growth in prescription drug spending," said Anne Martin, an economist in the Office of the Actuary and lead author of a Health Affairs article detailing the spending spike.

The ACA led to an estimated 8.7 million people gaining health coverage in 2014 through expanded Medicaid programs and from privately-sold health insurance plans, whose sale began through government-run marketplaces that year. That, in turn, led to more people obtaining medical care that year, boosting overall health spending.

Medicaid expenditures jumped by 11 percent last year, up from 5.9 percent growth in 2013. Private health insurance spending grew by 4.4 percent in 2014, markedly higher than the 1.6-percent rate in 2013.

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Spending on retail prescription drugs shot up by 12.2 percent in 2014, after rising by just 2.4 percent in 2013.

The growth in retail drug spending, the biggest increase since in 2002, was due largely to greater expenditures new medicines, particularly on specialty drugs including very pricey medications for Hepatitis C, as well as drugs targeting cancer and multiple sclerosis.

However, consumer out-of-pocket spending on health grew by only 1.3 percent in 2014, compared with a 2.4-percent growth rate the prior year. Such out-of-pocket spending includes deductibles, co-payments and co-insurance that individuals must cover themselves under their health plans.

Obamacare to blame for soaring drug costs: AEI

"Millions of uninsured Americans gained health coverage in 2014," said Andy Slavitt, acting administrator of CMS, which oversees Obamacare. "And still, the rate of growth remains below the level in most years prior to the coverage expansion, while out-of-pocket costs grew at the fifth-lowest level on record."

In 2014, 88.8 percent of the U.S. population had some form of health coverage, be it private or government-sponsored, compared with 86 percent of the population in 2013. That is the highest share of the population with insurance since 1987, CMS noted in a press release.

Richard Frank, a top official at the Health and Human Services Department, said that the overall growth in health spending last year "had been widely predicted by economists, and is not surprising given that more people are covered and getting the health care they need."

But the "faster growth in aggregate spending due to rising coverage will be temporary and will fade in the company years," said Frank, the assistant secretary for planning and evaluation at HHS.

Frank said that an increase in overall total health spending due to expanding insurance coverage "does not translate into higher costs for individuals and families who already had coverage."

"For them, what matters is growth in per-enrollee spending, which remained low in 2014, Frank said.

Trimmed health care holdings: Bob Doll
Trimmed health care holdings: Bob Doll

Overall spending per-enrollee in private health insurance plans, which includes those sold on government-run Obamacare exchanges, grew by 3.2 percent in 2014. Spending by the federal Medicare program, which covers mostly senior citizens, grew by 2.4 percent on a per-enrollee basis, according to Wednesday's report.

And spending per-enrollee by Medicaid, the joint federal-state program that covers poor people, actually fell in 2014, by 2 percent.

But overall spending by Medicaid grew by 11 percent in 2014, a much bigger increase than either the 5.5-percent overall spending increase by Medicare, or the 4.4-percent overall spending increase for people with private insurance plans.

Medicaid's higher spending rate in 2014 reflects how important the program has been for expanding health coverage under the ACA.

About 6.3 million people who were newly eligible for Medicaid entered the program in 2014. As of that year, 26 states and the District of Columbia had expanded their Medicaid programs as encouraged by the ACA to allow enrollment by nearly all poor adults; the remaining states as of 2014 had tougher restrictions on eligibility for the programs.

Largely because the federal government funded 100 percent of the costs of insuring the newly eligible under Medicaid in 2014, the government's share of overall health spending grew to 28 percent in 2014, up from 26 percent the prior year. The federal government's funding of newly eligible Medicaid enrollees is decreasing over time, but by law will go no lower than 90 percent of total costs.

Federal government health spending also increased in 2014 because the government gives subsidies to most enrollees on Obamacare exchanges in order to help pay their monthly premiums, and also gives many such customers assistance paying their out-of-pocket health expenses.