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From Health Law Daily, December 3, 2015

More coverage, higher drug costs caused 2014 health spending increase

By Kathryn S. Beard, J.D.

During 2014, the first year that many of the Affordable Care Act’s provisions went into effect, overall health spending grew by 5.3 percent, while consumer out-of-pocket spending grew by only 1.3 percent. According to CMS, the two main factors for these changes were millions of new people with health insurance coverage and rapidly rising prescription drug costs. The CMS Office of the Actuary published its 2014 National Health Expenditure Account, showing 2014 health spending accounted for 17.5 percent of the United States’ gross domestic product (GDP). CMS Acting Administrator Andy Slavitt said, “Millions of uninsured Americans gained health care coverage in 2014, and still, the rate of growth remains below the level in most years prior to the coverage expansion, while out-of-pocket costs grew at the fifth lowest level on record.”

Section 1501 of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) requires most Americans to have “minimum essential coverage” or to pay a penalty tax assessment. The provision went into effect in 2014, and allowed an additional 8.7 million Americans to obtain coverage in 2014 compared to 2013. CMS notes that in the decade prior to the ACA, health care spending grew by an average of 6.9 percent annually, 2.8 percentage points faster than GDP.

Other key findings include the following:

  • Total private health insurance expenditures accounted for 33 percent of total health care spending, a 4.4 percent increase from 2013, which represented the slowest rate since 1967.
  • Medicare spending represented 20 percent of national health spending, mostly due to increased spending growth for retail prescription drugs and in Medicare Advantage.
  • Medicaid spending accounted for 16 percent of total spending on health, driven by coverage expansion under the ACA in 26 states plus the District of Columbia.
  • Out-of-pocket spending grew 1.3 percent in 2014, down from 2.1 percent in 2013, due to the ACA’s expansion of insurance coverage and the corresponding drop in the number of individuals without insurance.
  • Retail prescription drug spending accelerated in 2014, growing 12.2 percent because of increased spending for new medicines (particularly specialty drugs), a smaller impact from patent expirations, and price increases for brand-name drugs.
  • Households and the federal government each accounted for 28 percent—the largest shares—of health spending, followed by private businesses at 20 percent, and state and local governments at 17 percent. The federal government share increased because of the ACA’s Medicaid expansion, which in 2014 was financed 100 percent by the federal government, and health insurance premium tax credits.

Slavitt added, “We must remain vigilant in focusing on delivering better health care outcomes, which leads to smarter spending, particularly as costs increase in key care areas, like prescription drugs costs.”

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