Big Jump in Health Care Services Spending in Q1 2015, But Prices Stay Low

Headshot of Kathy Hempstead

Katherine Hempstead, PhD, MA, director and senior program officer, leads RWJF's work on health insurance coverage.

This seventh monthly trend report produced by the Altarum Center for Sustainable Health Spending and funded by the Robert Wood Johnson Foundation, builds upon data from their ongoing monthly Health Sector Economic Indicators and provides further analysis of the latest findings from the Census Bureau’s Quarterly Services Survey. This report provides new data for the first three months of 2015 based on the Quarterly Services Survey data released by the Census Bureau on June 10th.

The report provides ample detail on the key trends, but a few things jumped out as particularly interesting. First, the annual rate of growth in health services spending, which increased steadily throughout the quarters of 2014, jumped even higher in Q1 2015, to a startling 7.3 percent. This is particularly notable in the face of persistently low health care service prices, suggesting that utilization is driving the trend. The increase in covered lives in Q1 2015 would not seem, on its face, to be sufficient to account for this much of a jump. One possibility may be abnormally low utilization in Q1 2014 due to weather. If this is the case, we should expect this growth to flatten in the next quarter.

A second big point already mentioned is the persistence of a low rate of price growth for health care services throughout 2014 and into 2015. A very interesting Figure 5 shows a prolonged slowdown in growth of health care service prices beginning in 2010 and continuing to 2015. Low rates of price growth are found in both the hospital and physician sectors, as seen in Figure 6.

Graph showing increase in health care service spending.

Figure 5

Line graph showing decrease in health care prices.

Figure 6

One possible explanation for the persistence of low price growth would be changes in the production function that would allow services to be produced less expensively. The potential for this as an explanation is seen in the labor productivity data shown in Figures 9 and 10.

Line graph showing increase in health care service jobs

Figure 9

Line graph showing increase in health care jobs.

Figure 10

Health care jobs have increased at a healthy clip, especially in hospitals, but estimated utilization has increased far more quickly, suggesting that the productivity of labor has increased considerably. Medicare payment policies have placed pressure on providers to become more efficient, and it would appear that all payers may be benefitting from increased productivity. Growing use of new technology, such as telemedicine, may accelerate these trends. 

One final trend to keep an eye on is the growth in spending on the net cost of insurance, a sometimes overlooked component of national health expenditures. Spending on insurance grew 8 percent in 2014 and nearly 10 percent in the first quarter of 2015, as seen in Figure 3. While some increased spending on insurance is an unavoidable byproduct of coverage expansion, it is important to think about how enrollment and eligibility in the new individual market can most efficiently be administered. Growing out of the consternation that arose leading up to the King decision, these discussions are still taking place. This category of health care spending is one we should continue to watch carefully.

Graph showing rise in health care spending.

Figure 3

ABOUT THE SERIES

Kathy Hempstead provides commentary on the Altarum Center for Sustainable Health Spending’s monthly trend reports. With funding from the Robert Wood Johnson Foundation, these trend reports provide a monthly summary of key trends in health care spending, prices, utilization, and employment.