Health spending in U.S. increases 5.5 percent in 2014

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For the first time in six years, health spending in the U.S. is projected to have increased more than five percent in 2014, mostly due to an expansion of insurance coverage. Prescription drug spending also played a role, growing 12.6 percent last year as costly hepatitis C medications and new treatments for cancer and multiple sclerosis became available.

The annual Centers for Medicare and Medicaid Services (CMS) report also estimated health spending would grow by an average of 5.8 percent per year from 2014 to 2024 as more people are insured, the economy recovers and the population ages.

By 2024, the U.S. will spend $5.4 trillion on healthcare, accounting for 19.6 percent of the country’s gross domestic product. The report was published online in Health Affairs on July 28.

In 2014, healthcare spending increased an estimated 5.5 percent to $3.1 trillion, while 8.5 million Americans gained insurance through Medicaid expansion and the health insurance marketplaces. Starting in 2014, most Americans were required to have insurance or pay a tax, a provision included in the Patient Protection and Affordable Care Act (ACA).

The number of Medicaid beneficiaries increased 12.1 percent last year to 66.5 million, although per beneficiary spending decreased 0.8 percent because the newly insured were healthier than previous enrollees.

For 2015, health spending is expected to increase 5.3 percent as Medicaid expansion slows and the growth in prescription drug spending decreases. The researchers expect insurance companies and other payers to negotiate with pharmaceutical manufacturers to lower the price of hepatitis C medications and other costly drugs.

From 2016 to 2018, CMS projects annual health spending increases of 5.3 percent per year, which will increase 6.2 percent per year from 2019 to 2024. The higher rates in later years reflect the predicted growth in Medicare beneficiaries and medical price inflation.

The trends reverse a recent decline in health spending growth following the economic downturn. From 2008 to 2013, annual spending grew 4 percent per year, which was historically low according to the CMS researchers.

The researchers based their projections using actuarial and econometric models and assumptions about events and trends that impact health spending. However, they noted the estimates could be altered in the coming years.

“These projections are inherently subject to substantial uncertainty related not only to the continuing effects of the ACA but also to variable macroeconomic conditions,” the researchers wrote. “Indirect effects of the ACA on the market for health care remain highly uncertain, including the behavioral response to reform on the part of consumers, insurers, employers, and providers throughout the projection period. Furthermore, with six years of historically low growth in health spending, questions have persisted about whether or not a more fundamental change is occurring in the health sector, notwithstanding coverage expansions.”