US Health Care Spending Decreases in 2016

Henrietta Brewer
December 8, 2017

The National Health Expenditure Accounts (NHEA) are the official estimates of total health care spending in the United States.

Authors of the CMS report said spending growth slowed past year for all three major categories of medical goods and services - hospitals, physician/clinical services and retail prescription drugs - for the first time since 2010. Changes in the age and gender mix of the population accounted for 0.6 percentage point of the growth in per capita health spending.

The rate of spending growth for 2016 is more in-line with the average of 4.2% growth seen between 2008 and 2015.

On Wednesday, a federal study conducted by the Office of the Actuary at the Centers for Medicare and Medicaid Services (CMS) showed that while the overall spending for health services increased in 2016 ($3.3 trillion), the pace at which spending for healthcare slowed down drastically compared to the previous two years.

That higher growth in those years was due in part to the addition of 19 million Americans to the ranks of people insured by either private insurance or Medicaid as a result of the Affordable Care Act.

According to the CMS, the main reason for the slow down was the decreasing demand for physician services, prescription drugs, and hospital care by the American public. The decline was driven by slower enrollment growth following expansion under Obamacare. Out-of-pocket hospital spending growth jumped in 2016 after 2 years of declines because of enrollment in consumer-directed health plans, which tend to have higher co-payments and deductibles than other forms of insurance.

Together, Medicare and Medicaid made up 77% of home health spending in 2016. A year before, spending on such drugs grew by 8.9 percent, and in 2014 by 12.4 percent. Medicare spending rose 3.6% to $672.1 billion, down from 4.8% growth in 2015, accounting for 20% of total healthcare expenditures. Medicaid spending increased 3.9% in 2016, much slower than the rates in 2015 and 2014 (9.5% and 11.5%, respectively), both of which were due to the initial impacts of ACA's expansion of Medicaid eligibility. That was due to slower enrollment growth, which was partly offset by faster growth in hospital prices, which accelerated slightly from 0.9% in 2015 to 1.2% in 2016. Per-enrollee spending also increased at a slower rate than 2015 - 0.8% compared with 2.1%. The share of the economy devoted to healthcare rose slightly from 17.7% in 2015 to 17.9% previous year. The slowing was driven by fewer new drugs being introduced and less spending on pricey treatments for hepatitis C.

Spending on private health insurance rose 5.1 percent to $1.1 trillion, which was slower than the 6.9 percent growth in 2015. Despite large fluctuations in growth rates over the past several years, the 10% share of national health spending is similar to the share in 2009.

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