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Health Spending is Rising More Rapidly

By April 14, 2015Commentary

The last few months brought the first glimmers of health spending acceleration and the latest reports from the Altarum Institute’s Center for Sustainable Health Spending, covering February 2015, confirm this trend.    (Altarum Reports)   Health spending in February was 6.6% higher than in February 2014.  This was higher than January’s 6.5% year-over-year increase and a chart of the last two years reveals a fairly steady uptick in growth in the last few months.  Spending increased in all categories, with prescription drugs increasing fastest, at 10.5%, while hospital spending also grew rapidly, at 9%.  Physician and clinical services showed more sedate growth, at only 3.2%.  Since hospital spending is the largest single chunk of total health spending, at 32%, the large increase in that category is particularly concerning. All categories except physician showed more rapid rises in the 12 months ending February 2015 than they did in the 12 months ending February 2014, in most cases significantly faster increases.  Turning to health care prices, in February they were 1.4% higher than a year ago, which is an uptick from January’s 1.2% year-over-year gain.  The 12 month moving average was steady at 1.5%.   Prescription drugs led the way with 5.2% price rise, followed by nursing home at 2.4% and hospital at .4%, with physician prices flat.  For comparison, overall inflation has been zero for the last twelve months, in part because of the strong dollar which reduces import prices. Health care doesn’t really have imports, so it is relatively unaffected by this dynamic.  Medicare and Medicaid prices grew more slowly than those for the commercially-insured sector, which rose 2.3%.  Combining spending and price data indicates that utilization grew by 5.3%, continuing the surge that began at the end of last year, and suggesting that utilization is accounting for the vast bulk of the spending increase.  The rise in utilization at the end of 2014 can partly be accounted for by the expanded presence of high-deductible plans–as people get those deductibles satisfied, they tend to use more health care at the end of a year before the deductible starts over again.  But the continued utilization growth in early 2015 suggests other dynamics at work and should be worrisome in terms of total health spending, which someone is paying for.

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