Even though Americans got more hospital care and prescription drugs in 2019, the elimination of a tax on insurers resulted in the growth rate of healthcare spending remaining effectively flat year-over-year.
U.S. healthcare spending grew 4.6% to $3.8 trillion in 2019, close to its 4.7% growth in 2018 and tracking with the industry’s 4.5% average yearly rate since 2016, according to an analysis by CMS’ Office of the Actuary released Wednesday in Health Affairs.
But growth in hospital care spending—31% of all healthcare spending last year—accelerated from 4.2% in 2018 to 6.2% in 2019 and totaled $1.2 trillion, according to the report. That was driven entirely by year-over-year growth in the use and intensity of services, as hospital price growth slowed slightly in that time.
Last year’s overall stable growth was the net result of the faster growth in spending at hospitals, as well as on physician care and drugs, offset by a decline in the net cost of health insurance, mostly because of the suspension of an annual tax on health insurers.
“There was a lot of mixed trends going on in there contributing to the stability,” Anne Martin, an economist in the CMS Office of the Actuary and lead author of the article, explained on a call with reporters.
Healthcare spending grew at a slightly faster rate than that of the country’s gross domestic product: 4%. As a result, healthcare’s share of the economy increased to 17.7% in 2019 from 17.6% in 2018.
Price growth accounted for 1.1 percentage points of the healthcare spending growth rate in 2019, down from 2.3 percentage points in 2018. The overall price of hospital care, physician services and prescription drugs held steady, the report found.
The slower price growth was largely due to the suspension of an annual tax on health insurers that has been collected and suspended in recent years, causing volatility in spending growth rates, Martin said. The ACA created the sizable tax to fund the implementation of its marketplace exchanges, but insurers have fought it at every turn. Late last year, the tax was permanently repealed starting in 2021. The government estimates it will generate $15.5 billion in revenue this year.
Physician and clinical spending—20% of all healthcare spending—grew by 4.6% last year, compared with 4% in 2018. Use and intensity was a larger contributor than price.
Retail prescription drug spending—10% of all healthcare spending—grew from 3.8% in 2018 to 5.7% in 2019. Like hospital care, the uptick was driven by use. Prices actually declined slightly year-over-year because of slowed price growth for brand-name drugs and lower prices on generic drugs.
The main driver behind the higher prescription drug spending growth, which does not include drugs used in hospitals, was more Medicare Part D beneficiaries hitting their catastrophic benefit limit, causing Medicare to shoulder more of the cost of expensive specialty drugs, Martin said.
Especially noteworthy in the paper’s findings was the degree to which Medicare Advantage enrollment is fueling Medicare spending growth, which was almost double that of private insurance in 2019. Medicare private health plan spending accounted for 39% of all Medicare spending last year, a 14.5% year-over-year uptick.
Federal data show 25.4 million people were enrolled in Medicare Advantage plans as of October. That’s double the enrollment from a decade ago, when about a quarter of Medicare enrollees were in such plans, according to the Commonwealth Fund.
Martin noted on the call that fee-for-service Medicare enrollment has been effectively flat for the past few years. Fee-for-service spending accounted for 61% of total Medicare spending in 2019, down from 67% in 2016.
Per-capita Medicare Advantage spending grew by 6.3% in 2019, compared with 2.4% on the fee-for-service side, the study found.
The COVID-19 pandemic, while not accounted for in the current report, will undoubtedly upend typical healthcare use patterns in the 2020 report and possibly beyond, the report noted.
