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Health Finance Issues

Health Finance Issues

1/14/2014

Introduction

Doctor with Patient PhotoHealth finance includes the mobilization of funds for health care, the allocation of funds to specific regions and population groups and for specific types of health care, and/or mechanisms for paying for health care. Rising health care costs continue to dominate the American health policy agenda. Accordingly, there are thousands of publications, hundreds of professional, industry and advocacy organizations, and dozens of well-funded "think tanks" writing about health finances. In the face of this activity, the National Conference of State Legislatures has concentrated its own resources on questions frequently asked by state legislators.

At-a-Glance:

Health spending in the U.S. reached an estimated $2.8 trillion in 2012 while overall growth remains low. 

On Jan. 6, 2014, Health Affairs journal published the latest report on health care spending in the United States, as compiled by the Office of the Actuary at the Centers for Medicare and Medicaid Services (CMS). They report that this spending grew at a rate of 3.7 percent in 2012 to $2.8 trillion. The level of annual growth is similar to spending growth rates since 2009, which increased between 3.6 percent and 3.8 percent annually. This means that growth during all four years has occurred at the slowest rates ever recorded in the fifty-three-year history of the National Health Expenditure Accounts. Total health care spending in 2012 grew more slowly than did the gross domestic product (GDP), which means that the share of the economy devoted to health care fell slightly from its 2011 level of 17.3 percent to 17.2 percent in 2012. 

Although the Affordable Care Act had a minimal impact on aggregate health spending through 2012, several provisions continued to affect certain subcomponents of national health expenditures, such as increased Medicaid rebates for prescription drugs, the Medicare drug coverage gap ("donut hole") discount program, coverage for dependents under age twenty-six, and the minimum medical loss ratio provision (which requires insurers to spend a minimum percentage of premium revenue on medical claims and health care quality improvements).

2013 Fall Finance Update

On Sept. 18, new estimates released from the Office of the Actuary at the Centers for Medicare and Medicaid Services (CMS) project that aggregate health care spending in the United States will grow at an average annual rate of 5.8 percent for 2012-22, or 1.0 percentage point faster than the expected growth in the gross domestic product (GDP). The health care share of GDP by 2022 is projected to rise to 19.9 percent from its 2011 level of 17.9 percent.

The findings appear as a  Health Affairs Web article and will be published in the October issue. The article provides an analysis of how Americans are likely to spend their health care dollars in the coming decade, with projections for spending by different sectors, payers, and sponsors. The projections reflect a combination of factors affecting health care spending, including provisions of the Affordable Care Act (ACA) that increase health insurance coverage and forecasted changes in the nation's economy.

  • For 2013 health care spending growth is projected to remain under 4 percent because of the sluggish economic recovery, continued increases in cost-sharing requirements for the privately insured, and slow growth for Medicare and Medicaid spending. Consumers remain sensitive to rising health costs and businesses seek to restrain costs. In line with this, private health insurance spending is expected to slow to 3.4 percent.
  • Starting in 2014 growth in national health spending will accelerate to 6.1 percent, reflecting expanded insurance coverage through the ACA, through either Medicaid or the marketplaces.  (This compares to 4.5 percent growth without these reforms. The use of medical services and goods, especially prescription drugs and physician and clinical services, among the newly insured is expected to contribute significantly to spending increases in Medicaid (12.2 percent) and private health insurance (7.7 percent). Out-of-pocket spending is projected to decline 1.5 percent in 2014 due to the new coverage and lower cost sharing for those with improved coverage.
    • Many of the eleven million newly insured are anticipated to be generally younger and healthier and are expected to devote a larger share of their health care spending to prescription drugs and physician and clinical services and a smaller share to hospital spending.
    • The Affordable Care Act is also expected to influence growth rates for the major payers, with a rise in private health insurance spending to 7.7 percent and a decrease in individual out-of-pocket spending by 1.5 percent.
    • Medicaid enrollment is expected to increase by 8.7 million people in 2014, with total Medicaid spending projected to grow 12.2 percent to $490.0 billion. Nearly all of this growth is a result of the Affordable Care Act's expansion of coverage.
  • By 2022 the ACA is projected to reduce the number of uninsured people by thirty million, add approximately 0.1 percentage points to average annual health spending growth over the full projection period, and increase cumulative health spending by $621 billion.

Analysis by the CMS Office of the Actuary of the past fifty years of National Health Expenditure Accounts data suggests that health spending growth is likely to accelerate once economic conditions improve markedly. "Although projected growth is faster than in the recent past," says Gigi Cuckler, the lead author for the study, "it is still slower than the growth experienced over the longer term."
Key national health expenditure projections for specific timeframes include the following:
 

  • 2012:  National health spending is estimated to have reached $2.8 trillion and grew 3.9 percent--the same rate as in 2011--reflecting the persistent effects of the recession and the modest recovery.  In 2012 prescription drug spending is estimated to have accounted for $260.8 billion of national health spending, a decline of 0.8 percent, compared to 2.9 percent growth in 2011. The decline was due to increased use of generic drugs as some popular brand-name drugs lost patent protection, increases in cost-sharing requirements, and lower spending on new medicines.

The major areas where spending growth accelerated in 2011 (over 2010) were:

  • Physician and clinical services (4.3 percent) spending grew faster in 2011 compared to growth of 3.1 percent in 2010 and was due primarily to increased growth in non-price factors, such as the use and complexity or intensity of services that more than offset slower growth in prices for these services.
  • Medicare spending (6.2 percent) growth (compared to 4.3 percent growth in 2010) is attributable to a one-time increase in spending for skilled nursing facilities and faster growth in spending for physician services under fee-for-service Medicare and for Medicare Advantage spending.
  • Private health insurance (3.8 percent) accelerated from 3.4 percent growth in 2010 and was mainly due to private health insurance enrollment increasing 0.5 percent in 2011, after declining each year from 2008 to 2010.
  • Retail prescription drugs (2.9 percent) spending growth accelerated from 0.4 percent growth in 2010, partly because of price increases in brand-name and specialty drugs. However, the growth is significantly lower than the 2009 figure of 5 percent growth.
  • Out-of-pocket spending (2.8 percent) growth increased faster in 2011 compared to 2010, when growth was 2.1 percent, and was partially due to higher cost sharing and increased enrollment in consumer-directed health plans.
The major areas where spending growth slowed (from 2010) were:
  • Medicaid expenditures (2.5 percent) growth slowed from 5.9 percent in 2010 and was mainly due to continued financial pressure on state budgets because of the economy and a shift in the share of spending from the federal government to the states (a result of expiration of enhanced federal aid to states in June 2011), as well as slower enrollment growth in the program (from 4.9 percent in 2010 to 3.1 percent in 2011).
  • Hospital spending (4.3 percent) slowed from 4.9 percent growth in 2010 is attributable to slower growth in the prices charged by hospitals and low growth in use of hospital services and in Medicaid spending for hospital care.
Read More: the CMS Actuary report received widespread media attention – see:
  • Report: U.S. Health Spending Grew At Record Slow Pace For Third Consecutive Year, Kaiser Health News, 1/8/2013.
  • Medicaid Expenditures and Enrollment continue to be a dominant state concern and commitment.
    According to NCSL's State Budget Update of Fall 2012  ten states reported that Medicaid or other health care programs were over budget, compared with only six states last year. Texas notes that when balancing the 2012-2013 biennial budget, Medicaid was underfunded by approximately $4.3 billion. West Virginia estimates that Medicaid is $180 million over budget in FY 2013, and Maine notes that despite declining caseloads, Medicaid spending continues to increase. California, Connecticut, Georgia, Iowa, Maryland, Nevada, and Virginia also report overspending on Medicaid or other health care benefits.  Among the 2012 budgets "the most significant change "was the absence of American Recovery and Reinvestment Act (ARRA) funds. Some states reported large appropriations increases as they attempted to restore some of the spending previously supported by ARRA funds—Medicaid (34 states)."

The 2013 Milliman Medical Index of total health spending for a typical family of four covered by an employment-based preferred-provider health insurance policy, including the total insurance premium and the family’s out-of-pocket spending, now stands at $22,030. The total share of this cost borne directly by the family—$9,144 in payroll deductions and out-of-pocket costs—now exceeds the cost of groceries for the MMI’s typical family of four. The out-of-pocket cost alone is $3,600 for co-pays, coinsurance, and other cost sharing. Full Text: MMI 2013.

The Fiscal Survey of the States, Fall 2013. The National Association of State Budget Officers (NASBO) has forecast that state general revenues will grow 3.4% in 2012, 4.3% in 2013, and 3.8% in 2014, which is lower than the rate of growth in Medicaid in each of the previous five years.[1] If projected Medicaid spending continues to exceed revenues, states must: 1) reduce the rate of growth in spending; 2) take resources from other programs; 3) find new types of revenue; or 4) a combination of 1, 2, and 3.

Governors and state legislators understand that if their Medicaid budget is not under control, then the entire state budget is not under control. States will continue to feel budgetary pressures over the next several years and will therefore continue to pursue ways to constrain Medicaid spending. See: NASBO:The Fiscal Survey of the States, Fall 2013. Table 1. Related NASBO Webinar

 
National Health Expenditures (NHE) Amounts And Annual Growth, By Spending Category, Calendar Years 2009–12  [Posted by NCSL January 2014]
Spending category 2009 2010 2011 2012
                                                                                                 Expenditure amount
NHE, billions $2,504.2 $2,599.0 $2,692.8 $2,793.4
Health consumption expenditures 2,358.0 2,449.6 2,534.9 2,633.4
  Personal health care 2,117.4 2,192.9 2,271.2 2,360.4
   Hospital care 776.8 812.6 840.8 882.3
   Professional services 672.4 694.2 720.9 752.3
    Physician and clinical services 503.2 519.0 540.1 565.0
    Other professional services 66.8 69.8 73.1 76.4
    Dental services 102.5 105.4 107.7 110.9
   Other health, residential, and personal care 122.5 128.1 132.3 138.2
   Home health care 67.2 71.2 74.0 77.8
   Nursing care facilities and continuing care retirement communities 138.5 143.0 149.2 151.5
   Retail outlet sales of medical products 339.9 343.9 354.0 358.3
    Prescription drugs 254.5 255.7 262.2 263.3
    Durable medical equipment 35.0 37.0 39.1 41.3
    Other nondurable medical products 50.3 51.2 52.8 53.7
  Government administration 29.8 30.5 32.8 33.6
  Net cost of health insurance 136.7 150.9 157.6 164.3
  Government public health activities 74.1 75.3 73.3 75.0
Investment 146.2 149.4 157.8 160.0
  Noncommercial research 45.4 49.1 49.7 48.1
  Structures and equipment 100.9 100.3 108.2 111.9
Annual growth
NHE, billions 3.8% 3.8% 3.6% 3.7%
 Health consumption expenditures 4.5 3.9 3.5 3.9
  Personal health care 5.0 3.6 3.6 3.9
   Hospital care 6.6 4.6 3.5 4.9
   Professional services 3.0 3.2 3.8 4.4
    Physician and clinical services 3.4 3.1 4.1 4.6
    Other professional services 4.4 4.6 4.6 4.5
    Dental services 0.1 2.8 2.2 3.0
   Other health, residential, and personal care 7.9 4.6 3.3 4.5
   Home health care 8.0 5.8 4.1 5.1
   Nursing care facilities and continuing care retirement communities 4.5 3.2 4.3 1.6
   Retail outlet sales of medical products 4.0 1.2 3.0 1.2
    Prescription drugs 4.9 0.4 2.5 0.4
    Durable medical equipment 0.4 5.6 5.6 5.6
    Other nondurable medical products 1.7 1.8 3.0 1.8
  Government administration 1.3 2.4 7.3 2.7
  Net cost of health insurance −1.8 10.4 4.5 4.2
  Government public health activities 3.6 1.6 −2.6 2.3
Investment −5.3 2.2 5.7 1.4
  Noncommercial research 3.0 8.1 1.2 −3.1
  Structures and equipment −8.6 −0.5 7.8 3.4

SOURCE Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group. CMS Highlights NOTES Definitions, sources, and methods for NHE categories can be found in the National Health Accounts methodology paper (see Exhibit 1 notes). Numbers may not add to totals because of rounding. Percent changes are calculated from unrounded data.

Health Reform Grants and Loans

The federal Affordable Care Act (ACA) provides for federal grants as well as loans to implement specific programs and sections of the health reform law.  The follow five 50-state tables list dollar amounts, by state and by program.  The information is derived from HHS posted information; also see the TAGGS link below for all health funds, in addition to ACA-specific funds.
 

HHS finalizes rule guaranteeing 100 percent funding for new Medicaid beneficiaries

On March 29, 2013, Health and Human Services (HHS) announced a final rule that states, effective January 1, 2014, the federal government will pay 100 percent of the cost of certain newly eligible adult Medicaid beneficiaries.  These payments will be in effect  through 2016, phasing down to a permanent 90 percent matching rate by 2020. The Affordable Care Act authorizes states to expand Medicaid to adult Americans under age 65 with income of up to 133 percent of the federal poverty level (approximately $15,000 for a single adult in 2012) and provides "unprecedented federal funding for these states."  Read the HHS fact rules, released 3/29/2013.

NCSL Published Resources

NCSL Meeting Presentations Legislative Summit logo 2013

  • 2013: Taming Health Care Costs: New Solutions, New Challenges  – held at NCSL Legislative Summit in Atlanta, August 14, 2013.

America spends, on average, nearly $9,000 per person on health care each year. The cost to the nation is $2.8 trillion—almost 18 percent

of total GDP. How can we keep people healthy and budgets affordable, while improving care and coverage as well as combating waste and abuse?

Learn about the latest payment reforms and coverage plans and how to balance the benefits of future advances with our ability to pay for them.
Speakers:

Can We Afford Our Healthcare? New Directions and Solutions- NCSL Legislative Summit, Sponsored by the NCSL Health Committee, 7/24/10 
America spends an astounding $2.4 trillion to keep us alive, productive and healthy, a number that will rise by $175 billion this year. Some states want to take the lead in "fixing" key parts this system—a daunting task for big- and small-government experts alike. Hear three national experts discuss recent initiatives intended to control costs while preserving or improving health outcomes.
Jeanne Lambrew, Associate Professor of Public Affairs, LBJ School, University of Texas; former Assistant Director for Health, OMB, White House- Presentation
Robert B. Helms, Resident Scholar & Director of Health Policy Studies, American Enterprise Institute; former Assistant Secretary,
HHS, Washington, D.C.- Presentation
John Clymer, President, Partnership for Prevention, Washington, DC- Presentation

Additional, Non-NCSL Online Resources & Reports of Interest

The following is a select list of more recent or state-oriented reports from government, policy, media and academic sources.

  • The Numbers Don’t Lie: Advancing Health Equity in Oregon through Better Data Collection. Community Catalyst, Feb. 6, 2014. Discusses the efforts of the Data Equity Legislative Coalition to support legislation to establish the collection of health care data using uniform standards.
  • Trends at Minnesota’s Community Hospitals: 2009 to 2012. This issue brief was released in January 2014 by the Health Economics Program at the Minnesota Department of Health.
  • Patients' Costs Skyrocket; Specialists' Incomes Soar, by Elisabeth Rosenthal for the New York Times. 19 Jan. 2014.
  • Medicaid Expenditures for Long Term Services and Supports in 2011, released fall 2013, is summarized in Dennis Smith's MLA report post of 12/23/2013. It shows "one bright spot is that spending on long term services and supports is growing more slowly than the rest of the Medicaid program, as states continue to shift care from institutional settings to home and community based services and supports."  The smallest annual increase in Medicaid spending on LTSS, just 0.8%, between 2010 and 2011. Also see CMS calculations online.
  • The New York Times published As Health Prices Soar, a Stitch Tops $500 by Elisabeth Rosenthal, Dec. 2, 2013.
  • 2013 Employer Health Benefits Survey released.  Annual premiums for employer-sponsored family health coverage reached $16,351 this year, up 4 percent from last year, with workers on average paying $4,565 toward the cost of their coverage, according to the Kaiser Family Foundation/Health Research & Educational Trust (HRET) 2013 Employer Health Benefits Survey. During the same period, workers' wages and general inflation were up 1.8 percent and 1.1 percent respectively.  This year's rise in premiums remains moderate by historical standards. Since 2003, premiums have increased 80 percent, nearly three times as fast as wages (31 percent) and inflation (27 percent).  "We are in a prolonged period of moderation in premiums, which should create some breathing room for the private sector to try to reduce costs without cutting back benefits for workers," Kaiser President and CEO Drew Altman, Ph.D., said.  Released Aug. 20, 2013.
  • State Differences in Costs of Employer-Sponsored Coverage: An AHRQ/MEPS Statistical Brief A brief from the Agency for Healthcare Research and Quality (AHRQ) examines state differences in the cost of employer-sponsored health insurance in 2012, based on the most recent data available from the Insurance Component of the Medical Expenditure Panel Survey (MEPS-IC), an annual federal survey of US private and public sector employers throughout the country.  The brief considers the average premiums and employee contributions for private-sector establishments in 2012 in the 10 most populous states based on the 2010 Decennial Census.  Of these states, New York had the highest average annual health insurance premiums for single coverage ($6,033), employee-plus-one coverage ($11,956), and family coverage ($16,924); at the same time, the average annual employee premium contribution in New York as a percentage of the premium price was below the national average for employee-plus-one coverage (22.3% vs. 26.6%) and family coverage (25.3% vs. 27.4%).  Published August 2013.
  • Assessing the Effects of the Economy on the Recent Slowdown in Health Spending Health spending has been growing at historically low levels in recent years. The Office of the Actuary (OACT) in the Centers for Medicare and Medicaid Services reports that national health spending grew by 3.9% each year from 2009 to 2011, the lowest rate of growth since the federal government began keeping such statistics in 1960. Estimates from the Center for Sustainable Health Spending at the Altarum Institute suggest that the slowdown largely continued into 2012, with health spending growing by 4.3% last year. The Kaiser Family Foundation/Health Research & Educational Trust Employer Health Benefits Survey shows similar moderation with premiums in employer-sponsored health plans increasing by 4% in 2012. [Full Report, HTML] Kaiser Family Foundation, April 2013
  • Health Care Costs and Spending in Massachusetts: A Review of the Evidence

This comprehensive chart pack pulls together, in one easy-to-use resource, many of the major findings and analyses from recent state and national research efforts including reports by the Massachusetts Division of Health Care Finance and Policy, the Massachusetts Attorney General’s Office, as well as analyses by the Centers for Medicare and Medicaid Services and the Dartmouth Atlas of Health Care. The chart pack features data and complete references on topics such as Massachusetts health care spending trends, cost drivers, variations in pricing as well as key differences between Massachusetts and the U.S.-  March 2012.

Health Care Costs and Spending in Massachusetts: A Review of the Evidence as a PDF file
> Health Care Costs and Spending in Massachusetts: A Review of the Evidence as a PowerPoint file

  • Medical Expenditure Panel Survey (MEPS) - comprehensive health data by state, 2011 and earlier,
    • Insurance Component  collects data from private and public sector employers on the health insurance plans offered to employees.
    • Publications: Analyses of MEPS data ranging from brief to extensive reports, chart books consisting mainly of graphs, and descriptions
    • Conduct your own state data search - 50-state tables on costs, premiums, enrollment, most for 2011 and back to 1999. State Search
    • Private-sector establishments that offer health insurance by firm size and % by State: 2011-  PDF |  HTML
    • Private-sector establishments that offer health insurance by plan provider arrangement, %  by State: 2011 PDF (6.6 KB) HTML
  • The New York Times published Slower Growth of Health Costs Eases U.S. Deficit, by Annie Lowrey, February 11, 2013. The article discusses the recent report (The Budget and Economic Outlook: Fiscal Years 2013-2023) released by the Congressional Budget Office in which findings suggest that spending on Medicare and Medicaid in 2020 will be roughly $200 billion, or 15 percent less than was projected as recently as three years ago.  The report also suggests that the U.S. is looking at a fourth consecutive year of record-low growth in health care spending, the lowest in more than 50 years.
  •  “Profiting From Pain” | According to the New York Times, “The use of narcotic painkillers, or opioids, has boomed over the past decade as drug makers and doctors have promoted them for a new use: treating long-term pain from back injuries, headaches, arthritis and conditions like fibromyalgia. Insurers have also grown to see pills as a cheaper way to treat chronic pain than other methods.” Published on June 22, 2013.
  • “The American Way of Birth is the Costliest in the World,”  In the New York Times Elisabeth Rosenthal discusses the comparatively high costs of childbirth in America. “Childbirth in the United States is uniquely expensive, and maternity and newborn care constitute the single biggest category of hospital payouts for most commercial insurers and state Medicaid programs. The cumulative costs of approximately four million annual births is well over $50 billion.” Published on June 30, 2013.
  • The Commonwealth Fund released a report, Stabilizing U.S. Health Spending While Moving Toward a High Performance Health Care System, in January 2013. The report provides a strategy for stabilizing health spending and concludes that the "approach could slow spending by a cumulative $2 trillion by 2023."
  • The Alliance for Health Reform released High and Rising Costs of Health Care in the U.S. The Challenge: Changing the Trajectory, in January 2013. "Controlling costs requires decreasing waste; reforming the payment system to change incentives; changing the delivery system to improve coordination and integration; managing costly patients with chronic diseases differently; engaging patients and families in shared decision making, particularly at the end of life; and many other discrete activities."
  • Non-Profit Hospitals and Community Benefits
    The Hilltop Institute’s Hospital Community Benefit Program, is a central resource for policymakers who seek to ensure that tax-exempt hospital community benefit activities are responsive to community health needs. The Institute has released a number of new resources. [links added April 2013]
    • What Are Hospital Community Benefits? -  A Fact Sheet gives a brief overview of hospital community benefits and considerations for state and local decision-makers.
    • Community Benefit State Law Profiles, a compilation of each state’s community benefit laws and regulations analyzed in the context of the Affordable Care Act’s (ACA’s) community benefit framework. An interactive map links to each state’s Profile and a summary table compares community benefit laws from state to state.
    • Hospital Community Benefits after the ACA: The State Law Landscape - An issue brief presents the Profiles’ findings and begins the analysis to facilitate a better understanding of each state’s community benefit landscape and its significance in the context of national health reform.[16 pp, PDF]
  • National Spending for Long-Term Services and Supports (LTSS), 2011 | Long-term services and supports (LTSS) for the elderly and younger populations with disabilities are a significant component of national health care spending. In 2011, spending for these services was $210.9 billion (9.3 percent of all U.S. personal health care spending), almost two-thirds paid by the federal-state Medicaid program. This publication by the National Health Policy Forum (NHPF) presents data on LTSS spending by major public and private sources. February, 2013. [8 pp, PDF]
  • Health Care and Profits Make for a Poor Mix, Jan. 9, 2013 |  "The relevant question is how best we can serve our social needs at the lowest possible cost...improving the delivery of social services like health care and pensions may be possible without increasing the burden on American families, simply by removing the profit motive from the equation," reports Eduardo Porter of the New York Times..
  • State Health Expenditure Accounts by Residence Location Highlights [PDF, 80KB] |  from the CMS Actuary / Census Bureau [added to this site, 6/2012]Market Survey of Long-Term Care Costs- 2012  – MetLife resource for consumers seeking information to help them make informed decisions about their long-term care needs.

Geographic Variation in Spending and Utilization Among the Commercially Insured |  Thomson Reuters, 7/27/11.


Graphic from "Assessing the Effects of the Economy on the Recent Slowdown in Health Spending" Report April 2013


Excess health spending re inflation
Older and Archived Online Resources 

Information compiled by Richard Cauchi, NCSL Health Program, Denver.

NOTE: NCSL provides links to other Web sites for informational purposes only. Providing these links does not indicate NCSL's support or endorsement of the site.

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