Health Spending Growth Lowest in More Than 50 Years

New estimates show health-care spending grew 3.6 percent in 2013, which is the lowest rate since 1960.
by | December 3, 2014

Health-care spending grew at a rate of 3.6 percent in 2013, the lowest rate of growth in more than 50 years, according to an annual estimate from federal actuaries.

The 2013 rate was smaller than 2012’s 4.1 percent and lower than any year since 1960. Actuaries from the Centers for Medicare and Medicaid Services (CMS) credited slower growth in Medicare enrollment, the effects of federal budget cuts, aspects of the Affordable Care Act (ACA), slower growth in private insurance premiums from greater cost-sharing for consumers and other factors.

Health-care expenditures typically outpace the growth of the economy as a whole -- they average 6.5 percent -- but they also tend to slow down during recessions and weak economic growth. For five consecutive years growth in health-care expenditures has held between 3.6 and 4.1 percent.

"The key question is whether health spending growth will accelerate once economic conditions improve significantly," said Micah Hartman, a statistician in the CMS Office of the Actuary and lead author of a Health Affairs article coinciding with the release of the estimates. "Historical evidence suggests it will."

The fact that 2014 will include spending from the first year of health coverage expansions within the Affordable Care Act also makes the trend hard to sustain. CMS actuaries predicted earlier this year that health spending in 2014 will increase 5.6 percent, which is still below historic averages.

Spending in Medicaid bucked the trend in private insurance and Medicare. At 6.1 percent growth, Medicaid reached $449.4 billion nationally, accounting for 15 percent of overall spending. Growth in Medicaid spending was 4 percent in 2012 and 2.5 percent in 2011 -- the two slowest years of growth in the program’s history -- but 2013 included some early expansions of the program and higher reimbursement rates for some doctors.

Premiums for private health insurance in 2013 grew 2.8 percent, lower than the 4 percent increase in 2012. The slower growth could be because of a shift toward high-deductible plans for consumers as well as provisions of the ACA regulating insurer spending and the rate of premium increases.

The slower growth from Medicare is largely attributable to reductions in payments to doctors, a decline in volume of services and federal budget cuts from sequestration.

One other notable area of increased spending came from prescription drug costs, which grew .5 percent to $271.1 billion in 2013 following a low of half a percent in 2012. CMS actuaries attributed the increase to higher prices for a number of brand-name and specialty drugs.

Read the Health Affairs report here.