Health spending jumps as PPACA kicks in

Dec 02, 2015 | By Jack Craver

After five years of relatively slow growth, U.S. health care spending rose significantly in 2014, bolstered by millions of new insurance consumers who gained coverage through the Patient Protection and Affordable Care Act.

According to a new analysis from the Centers for Medicare and Medicaid Services, health care spending rose 5.3 percent last year, to a total of $3 trillion, or $9,523 per person. Over the previous five years health care spending had risen at an average of 3.7 percent a year. In 2013, the last year before implementation of PPACA, health spending increased only 2.9 percent.

The percentage of the economy taken up by health care also increased slightly, from 17.3 percent to 17.5 percent. Health accounts for a much larger share of the economy in the U.S. than in other industrialized countries.

PPACA opponents have pointed to other recent studies that have shown increases in health spending as evidence that the law is fulfilling one of its stated goals of reining in the cost of health care. But others have said that the rise in spending is simply driven by the fact that more people now have insurance and are paying for it.

“Two main factors were responsible for health spending growth in 2014 — coverage expansion associated with the Affordable Care Act and faster growth in prescription drug spending,” said Anne B. Martin, an economist in the Office of the Actuary at CMS and lead author of a Health Affairs article studying the spending trends. “However, it is unknown how these drivers of health care spending will affect trends over the next few years as the new health insurance landscape continues to evolve.”

Medicaid spending already began increasing rapidly in 2013, when it rose 5.9 percent. In 2014 it rose another 11 percent, largely as a result of the big infusion of federal funds to pay to expand the public health program in most states. In 2015, even more states opted to expand Medicaid; 32 total are now offering access to those with incomes up to 138 percent of the federal poverty level, according to the Kaiser Family Foundation.

Private insurance spending rose unusually fast as well. The 2.2 million who purchased plans through the PPACA exchanges helped increase spending in the industry 4.4 percent in 2014, up from the meager 1.6 percent increase in 2013.

Hospital spending rose 4.4 percent, boosted by the larger number of insured patients using hospital services, the report stated.

But it was the federal government, which is picking up a large portion of the tab for every part of PPACA, including the Medicaid expansion and the subsidies for the individual insurance exchanges, that saw the biggest increase. Total federal health spending rose 11.7 percent in 2014, up from 3.5 percent the year before.

Medicare, which was not significantly altered by PPACA, also increased spending by 5.5 percent, up from 3 percent the previous year. Although reining in Medicare spending is also a stated goal of the Obama administration’s health care policy, its attempts to reduce costs by moving to outcome-based payment models are just getting started.

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