U.S. Health Spending Tops $3 Trillion

So much for controlling medical costs. According to the Department of Health and Human Services report on trends in spending that was recently published in Health Affairs, health-related spending in the U.S. topped the $3 trillion mark in 2014. This equates to $9,500 for every man, woman and child in America. To put the spending into further perspective, total government spending in 2014 was $3.5 trillion. Health-related spending increased by 5.3% in 2013, reversing the historically low increase of 2.9% in 2013. It equaled 17.5% of America's gross domestic product (GDP) for the year. Federal health spending accounted for almost $844 billion of the total, representing an 11.7% increase over 2013. Such a rise was predicted and somewhat inevitable, given that the Affordable Care Act (ACA) was designed to lower the number of uninsured Americans as much as possible. Medicaid expansion alone tripled its rate of spending increase — 18.4% in 2014 versus 6.1% in 2013. Spending on prescription drugs experienced a sharp increase in 2014. The $297.7 billion total was an increase of 12.2% over 2013 values. The ACA plays some role here as well, since greater coverage and use of the medical system means more total prescriptions. Prescriptions did increase by 1.8% in 2014 — but the majority of the spending change was due to price increases. Specialty drugs accounted for much of the increase, with the new hepatitis C treatments accounting for $11.3 billion alone. Health insurance companies have been quick to blame the ACA. UnitedHealth Group has already lowered profit estimates for the future while pointing a finger at the effects of the healthcare law. While acknowledging that healthcare costs have increased significantly, officials from the Obama administration are unapologetic about the effects of the ACA. Acting administrator of the Centers for Medicare and Medicaid Services (CMMS), Andrew M. Slavitt, points out that even with the increase in health care coverage, the growth rate of health care costs is still "below the level in most years prior to the coverage expansion." It is true that 2013 represented an anomalous low in spending increases, so perhaps we are seeing growth rates reach equilibrium. Slavitt also notes that out-of-pocket health care costs increased at a relatively low rate, although they almost reached $330 billion in 2014. Even the Medicaid spending increases can be put in a positive context. While it's true that expansion of coverage produced the greatest rate of Medicaid spending growth since 1991, spending per beneficiary actually decreased by 2% to $7,520. On the other end of the age spectrum, Medicare spending increases pushed their costs up to 20% of all healthcare expenditures. Medicare spending increased 5.5% in 2014 compared to a 3% increase in 2013, and spending per beneficiary increased by 2.4%. It seems likely that with the aging of the Baby Boomer generation, Medicare costs are likely to continue to rise and will be among the most difficult to control. Logically, as the ACA closes the gap in the uninsured rate, health spending should level out toward a rate of increase that is more representative of natural population growth and increased use due to a higher number of insured Americans. This may happen, but it is also worth remembering where the "affordable" in the ACA comes into play. Even with affordable premiums — and that is a highly arguable point as well — the ACA does not guarantee that overall health spending will come down. It will be interesting to see how the spending ratio shifts along with spending totals over time.