Health Spending and Prices, August 2014

The latest of Altarum’s regular reports on health spending growth and health inflation is out.   (Altarum Briefs)    A lot of attention is focused on both factors as reform kicks in.  The latest reports deal with June data and largely reflect Bureau of Economic Analysis sources.  Overall health spending rose 4.8% in the 12 months ending in June 2014, to an annual rate of $3.04 trillion.  This accounted for about 17.5% of total GDP.  Since the beginning of the recession in December 2007, real health spending has increased 16.9% while GDP has only grown 6.9%.  So anyone who things we don’t still have a very significant health spending problem is just dead wrong.  Hospital spending increased by 2.5% over the last year and is 31% of total spending.  Prescription drug spending accounts for only 10% of the total, but is growing most rapidly, at 11.9%.  Physician services are 20% of overall health spending, with a current growth rate of 3.6%.

On the inflation side, prices in June were 1.7% higher than the year earlier health care prices.  Hospital prices were up 1.9%, physician and clinical services increased .5%, home health prices rose .7% and drug prices grew 4.1%.   Since December 2007, health care prices have increased 14.5%, compared to economy-wide growth of 10.5%.  Muted price growth is to a large extent due to Medicare and Medicaid’s ability to set the price they pay, meaning that private health plan prices are growing at a much faster rate.   Utilization growth can be implied from the overall health spending increase and the price rises.  In June, utilization growth was 2.5%.  Some evidence suggests increases in utilization are coming as a result of the reform law.  Overall the picture is of historically moderate health spending growth, but most importantly, it continues to expand at a rate above GDP and there are reasons to suspect an acceleration in the second half of 2014.