Several Factors Affect Health Spending

U.S. health care spending grew 3.9% in 2011, marking the third consecutive year of relatively slow growth. Growth in national health spending was similar to growth in nominal gross domestic product (GDP) in 2010 and 2011, according to research published in healthaffairs.org.

However, the growth in personal health care spending jumped from 3.7% to 4.1% in 2011, partly because of faster spending growth for prescription drugs as well as physician and clinical services. Personal health care spending grew faster as the economy continued to recover from the recession and private health insurance enrollment stabilized after substantial losses over the prior three years.

The growth in Medicaid spending slowed. But spending growth jumped for Medicare, private health insurance, and out-of-pocket costs. There was relatively slow growth in incomes, jobs, and GDP in 2011, which raises questions about whether U.S. health care spending will rebound over the next few years as it typically has after past economic downturns.

Employer-sponsored insurance spending increased as 2.7 million young adult dependents moved to their parents’ plans. However, these younger and healthier enrollees are typically less expensive than average, which has tempered cost increases.

The Affordable Care Act increased prescription drug rebates for Medicaid fee-for-service enrollees and extended rebates to Medicaid managed care plans, which slowed the growth in Medicaid prescription drug spending in 2011.

Medicare Part D enrollees whose out-of-pocket drug spending reached the coverage gap (doughnut hole) got a 50% discount on brand-name prescription drugs. This led to a somewhat greater use of brand-name drugs and decreased out-of-pocket drug spending among Medicare beneficiaries.

Other provisions affecting Medicare expenditures include coverage for new preventive services, reduced cost-sharing requirements for existing services, and lower payment rate updates for hospitals and certain other providers.

The medical loss ratio provision increased benefit spending as a share of premiums for some plans in 2011. Although it is clear that the Affordable Care Act contributed to shifts in spending for payers and services, there is no discernible impact of the legislation on aggregate health spending trends.

In 2011, spending for private health insurance premiums and benefits increased 3.8%. The net cost ratio for private health insurance remained unchanged at 12.3%. The net cost ratio for commercial group insurance increased slightly in 2011 while the ratio for individually purchased policies declined. Some of this decline was probably due to the newly effective medical loss ratio provisions of the Affordable Care Act, according to researchers.

Private health insurance plans grew by 1 million enrollees or 0.5%, in 2011, mostly because of the increased coverage of dependents younger than  26 as mandated by the Affordable Care Act. This growth in enrollment occurred after a decline of nearly 11.2 million people with private health insurance during 2007 to 2010.

Per-enrollee spending on private health insurance benefits increased 3.2% in 2011 compared to 4.6% in 2010. This slowdown reflects a changing enrollment mix. Many people who gained insurance coverage were younger and healthier people with lower per=person expenditures.

In 2011, 17% of covered workers were enrolled in consumer-directed health plans, up from 8% in 2008. Enrollment has grown 23% per year since 2008, making consumer-directed plans and HMOs the second and third most popular plan types after PPOs. The shift to consumer-directed health plans and the decline in the number of people with private health insurance played a role in the low growth in private health insurance spending during 2008 to 2011. For more information, visit http://content.healthaffairs.org/content/32/1/87.abstract,

Last Updated 7/11/2017

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