Altarum Reports on Health Spending and Price Growth

The Altarum Institute issues monthly briefs on health spending growth and health price increases.  The most recent cover the period up to March 2014.    (Altarum Spending)  (Altarum Price)   Overall spending grew at a 7.1% rate in March 2014 compared to March 2013.  This is 3.6% faster than GDP growth in the same period.  The monthly reports show an ongoing increase in trend beginning in late spring of 2013 and accelerating in recent months.  The last recession began in December 2007 and GDP is now only 3.8% above that level, but health spending has grown an aggregate 18.5% over the same period.  Spending on drugs rose fastest at 11%, followed by hospitals at 8.1%, physician services at 6.2% and home health at about 3.6%.  Now much of the growth could be attributed to the Medicaid and individual insurance enrollment increases under the reform law and some theorize that this effect will lessen as the year goes on.  This seems very unlikely, as research does not support the notion that once people have insurance they have a blip in use which then recedes to its former level.  Utilization tends to stay up.

On the price side, the Altarum price index, which is weighted, indicated that prices were 1.1% higher in March 2014 than they were in March 2013 and the 12 month moving average was 1.2%.  This is remarkably low, and is even slightly below economy-wide inflation of 1.3%.  Needless to say, it is extremely unusual for health care price rises to be less than those in the larger economy.  In terms of categories of services, drug prices rose at 2.1%, hospital ones at 1.3%, physician and outpatient at .2% and home health prices saw a .5% decline.  Over the longer term, however, back to the start of the recession in December 2007, health care prices have risen 14.2%, while general inflation has gone up only 9.7%.  And when looked at by payer, there is more cause for concern.  As expected, the price-setting public programs of Medicare and Medicaid, which now account for half of all spending, saw negative price trends–for hospitals prices for Medicare were down .2% and for Medicaid the decrease was .3%.  But for private payers, hospital prices rose 3.1%.

The combination of the spending and price reports allows an inference about the role of utilization and it is clearly the source of recent spending growth.  Around 5.8% of the overall spending growth of 6.9% is due to utilization increases, reversing a trend for the last decade, in which prices were more responsible than per capita utilization for spending rises.  The annual rate of per capita utilization growth is now 5.1% and rising.  Hospital use has risen 3.6%, physician services by 3.2%, drug use by 5.9% and home health by 5.6%.  If private sector prices and overall utilization continue to rise, health spending will also continue to grow more rapidly.  So the suggestion that 2015 premiums will see a significant increase, certainly high single-digits, is well-supported by the spending trend data year-to-date.  And the utilization growth will hit even the public programs and likely cause further budget problems for the state and federal governments.