Health 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.
Health spending in the U.S. reached an estimated $2.9 trillion in 2013 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).
2014 Fall Finance Update
2013–23: Faster Growth Expected With Expanded Coverage And Improving Economy.
New spending estimates released from the Office of the Actuary (OACT) at the Centers for Medicare and Medicaid Services (CMS). In 2013 health spending growth is expected to have remained slow, at 3.6 percent, as a result of the sluggish economic recovery, the effects of sequestration, and continued increases in private health insurance cost-sharing requirements. [Read details at Health Affairs, 9/3/2014]
- 2013 Spending: In 2013, total national health expenditures in the United States reached $2.9 trillion, or $9,255 per person. The annual OACT report update (released Dec. 3, 2014) showed health spending continued a pattern of low growth—between 3.6 percent and 4.1 percent for five consecutive years.
- The combined effects of the Affordable Care Act’s coverage expansions, faster economic growth, and population aging are expected to fuel health spending growth this year and thereafter (5.6 percent in 2014 and 6.0 percent per year for 2015–23). However, the average rate of increase through 2023 is projected to be slower than the 7.2 percent average growth experienced during 1990–2008. Because health spending is projected to grow 1.1 percentage points faster than the average economic growth during 2013–23, the health share of the gross domestic product is expected to rise from 17.2 percent in 2012 to 19.3 percent in 2023.
- Spending on private health insurance premiums (a 33 percent share of total health care spending) reached $961.7 billion in 2013, and increased 2.8 percent, slower than the 4.0 percent growth in 2012. The slower rate of growth reflected low enrollment growth in private health insurance plans, the continued shift of enrollees to high-deductible health plans and other benefit design changes, low underlying medical benefit trends, and the impacts of the Affordable Care Act.
- Medicaid spending grew 6.1 percent in 2013 to $449.4 billion, an acceleration from 4.0 percent growth in 2012. Faster Medicaid growth in 2013 was driven in part by increases in provider reimbursement rates, some states’ expanding benefits, and early Medicaid expansion.
- 2014 Projection: Growth in national health spending is projected to increase to 5.6 percent in 2014 as nine million uninsured Americans gain health insurance, largely through Medicaid and private health insurance plans—including those available through the health insurance Marketplaces. In addition, expected changes to insurance markets in 2014, such as the availability of more generous coverage options for people who were previously insured, will likely contribute significantly to projected accelerations in spending growth for Medicaid (12.8 percent) and private health insurance (6.8 percent) and to a slight decline in projected out-of-pocket spending (−0.2 percent in 2014, down from 3.2 percent in 2013).
"Why the Geographic Variation in Health Care Spending Can’t Tell Us Much about the Efficiency or Quality of our Health Care System" - a Sept. 2014 report by the Brookings Institution, argues that a one-size-fits-all health-care approach won’t cut medical spending. [55 pp,PDF]
2013 Fall Finance Update
On Sept. 18, 2013 estimates released from the Office of the Actuary at the Centers for Medicare and Medicaid Services (CMS) projected 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. 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:
Medicaid Expenditures and Enrollment continue to be a dominant state concern and commitment.
- 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.
- 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. 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