Health Spending Slows In 2017, CMS Says

Overall national health spending grew at a rate of 3.9 percent in 2017, almost 1.0 percentage point slower than growth in 2016, according to a study conducted by the Office of the Actuary at the Centers for Medicare & Medicaid Services (CMS) and published today as a Web First by Health Affairs. Medicare spending grew at about the same rate in 2017 as in 2016, while Medicaid spending grew at a slower rate in 2017 than in 2016.

According to the report, overall healthcare spending growth slowed in 2017 for the three largest goods and service categories – hospital care, physician and clinical services, and retail prescription drugs. Details from the slower spending growth in these three largest goods and service categories are:

• Hospital spending (33 percent of total healthcare spending) decelerated in 2017, growing 4.6 percent to $1.1 trillion compared to 5.6 percent growth in 2016. The slower growth for 2017 reflected slower growth in the use and intensity of services, as growth in outpatient visits slowed while growth in inpatient days increased at about the same rate in both 2016 and 2017.
• Physician and clinical services spending (20 percent of total healthcare spending) increased 4.2 percent to $694.3 billion in 2017. This increase followed more rapid growth of 5.6 percent in 2016 and 6.0 percent in 2015. Less growth in total spending for physician and clinical services in 2017 was a result of a deceleration in growth in the use and intensity of physician and clinical services.
• Retail prescription drug spending (10 percent of total healthcare spending) slowed in 2017, increasing 0.4 percent to $333.4 billion. This slower rate of growth followed 2.3 percent growth in 2016, which was much slower than in 2014, when spending grew 12.4 percent, and in 2015, when spending grew 8.9 percent. These higher rates of growth in 2014 and 2015 were primarily the result of the introduction of new, innovative medicines and faster growth in prices for existing brand-name drugs. Retail prescription drug spending growth slowed in 2017 primarily due to slower growth in the number of prescriptions dispensed, a continued shift to lower-cost generic drugs, slower growth in the volume of some high-cost drugs, declines in generic drug prices, and lower price increases for existing brand-name drugs.

The 3.9 percent growth in healthcare spending was slightly slower than growth in the overall economy (4.2 percent) in 2017.  As a result, the healthcare spending share of the economy (17.9 percent) was similar to the share in 2016 (18.0 percent). Growth in overall healthcare spending slowed for the second consecutive year, following elevated rates of growth in 2014 and 2015 that were affected by expanded Medicaid and private health insurance coverage and increased spending for prescription drugs, particularly for drugs used to treat hepatitis C.

Additional highlights from the report regarding the source of funds include:

Private health insurance spending (34 percent of total healthcare spending) increased 4.2 percent to $1.2 trillion in 2017, which was slower than the 6.2 percent growth in 2016.  The deceleration was influenced by slower growth in medical benefits and a decline in fees and taxes resulting from the Consolidated Appropriations Act 2016, which suspended collection of the health insurance provider fee in 2017.

Medicare spending (20 percent of total healthcare spending) grew 4.2 percent to $705.9 billion in 2017, which was about the same rate as in 2016 when spending grew 4.3 percent. In 2017, slower growth in fee-for-service Medicare (Medicare FFS) spending (1.4 percent in 2017 compared to 2.6 percent in 2016) offset faster growth in spending for Medicare private health plans (10.0 percent in 2017 compared to 8.1 percent in 2016). The trends in Medicare FFS and Medicare private health plan spending are attributed in part to an increasing share of all Medicare beneficiaries enrolling in Medicare Advantage.

Medicaid spending (17 percent of total healthcare spending) growth slowed in 2017, increasing 2.9 percent to $581.9 billion following growth of 4.2 percent in 2016.  The slower growth in total Medicaid expenditures in 2017 was influenced by a deceleration in enrollment growth and a reduction in the net cost of Medicaid health insurance resulting from an increase in recoveries from Medicaid managed care plans for favorable prior period experience. State and local Medicaid expenditures grew 6.4 percent, while federal Medicaid expenditures increased 0.8 percent in 2017.  In 2017, states were required to fund 5 percent of the costs of the Medicaid expansion population, while in prior years these costs were funded entirely by the federal government.

Out-of-pocket spending (10 percent of total healthcare spending) includes direct consumer payments such as copayments, deductibles, and spending not covered by insurance.  Out-of-pocket spending grew 2.6 percent to $365.5 billion in 2017, which was slower than the 4.4 percent growth in 2016.

Sponsors of Healthcare.  In 2017, the federal government’s spending on healthcare slowed, increasing 3.2 percent after 4.9 percent growth in 2016. The deceleration was largely associated with slower federal Medicaid spending due to lower Medicaid enrollment growth, a reduction in the federal government’s share of funding for newly eligible Medicaid enrollees, and a decline in the net cost of insurance for Medicare and Medicaid enrollees in private plans in 2017. Growth in household spending on healthcare also slowed in 2017, increasing 3.8 percent following growth of 4.8 percent in 2016.  The slowdown was mainly driven by slower growth in out-of-pocket spending.

The National Health Expenditure estimates have been revised to reflect the most recent and up-to-date source data that is available (and may not have been available for last year’s vintage of the National Health Expenditure Accounts).

The 2017 National Health Expenditures data and supporting information will appear on the CMS website at: https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsHistorical.html.