What’s Happening to National Health Spending? It Depends on Who You Ask.

Staff portrait of Kathy Hempstead

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

Moderate health spending growth projections depend on slowdown in drug spending growth and continued low growth in service prices.

This eighth 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 Briefs and provides further analysis of the latest findings from the Census Bureau’s Quarterly Services Survey. This report discusses the recent projections from the Centers for Medicare & Medicaid Services (CMS) Office of the Actuary and analyzes new data from the Bureau of Labor Statistics.

The recent report of the CMS Actuary projects a sharp increase in the net cost of insurance for 2014 and 2015, years when coverage expansion is at its peak. CMS then projects the annual spending growth on the net cost of insurance will decline in subsequent years, but still projects it to be 6.7 percent by the year 2024. While a relatively small component of overall National Health Expenditures, the net cost of insurance is a category to watch as coverage expands. Managed care in Medicaid and Medicare accounts for about one third of this category, while the rest is private insurance. With massive change underway throughout the industry, the impact on net insurance costs will be important to monitor. There may also be a tradeoff between growth in insurance costs and growth in spending on health care services, if increased utilization management and more aggressive negotiations with providers result from growing expenditures on insurance by public and private payers.

CMS projects a fairly large decline in the growth rate in prescription drug spending, from 12.6 percent in 2014 to 7.6 percent in 2015. The Altarum Institute estimates 10.7 percent spending growth in the first five months of 2015, suggesting that the second half of the year would need to show considerably slower spending growth—in the range of 5.3 percent to match the CMS estimate. Some speculate that consolidation among carriers may help to restrain pharmaceutical prices, but these effects should not be felt in 2015. The 2016 formulary exclusion lists released recently by CVS Caremark and Express Scripts have grown longer, and reflect an increased willingness on the part of Pharmacy Benefit Managers (PBMs) to exclude specialty drugs. The overall impact on spending on specialty drugs remains to be seen.

This month’s trend report shows once more that health care price increases have continued to be very moderate. The Altarum Institute’s Health Care Price Index (HCPI) shows only a 1.1 percent growth in spending from June 2014 to June 2015. A breakdown of all service prices by payer from the Bureau of Labor Statistics shows that year-over-year prices are growing most slowly among public payers, but even private price growth is a moderate 2.0 percent. A growing gap between private and public payment to hospitals and other providers has been observed recently and probably warrants more analysis.

Finally, job growth in health care continues at a healthy clip, with over 40,000 jobs added in June of this year, with hospitals remaining a major source of employment growth in the sector. It would appear that significant wage pressure has not yet hit the health care sector, although with job growth in health exceeding that of the economy as a whole, this could occur before long, at least for some markets and/or occupations. We will learn more when the Bureau of Labor Statistics releases the Employment Situation for July.