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 $2.8 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:
The major areas where spending growth slowed (from 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.
- 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.
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. 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