Growth in Health Spending Slows for Fourth Straight Year

slowgrowthHealth care spending grew at a record slow pace for the fourth straight year in 2012, according to a actuaries at the Centers for Medicare and Medicaid Services, published in the journal Health Affairs. In 2012 U.S. health care spending saw the fourth consecutive year of slow growth with an increase of 3.7%. The share of the economy devoted to health spending decreased from 17.3% in 2011 to 17.2% in 2012.

The Gross Domestic Product increased nearly 1% faster than health care spending at 4.6%.  Private health insurance premiums reached $917 billion in 2012, and increased 3.2%, near the 3.4% growth in 2011. The net cost ratio for private health insurance was 12% in 2012 compared to 12.4% in 2011. (The difference between premiums and benefits as a share of premiums.)

Private health insurance enrollment increased 0.4% in 2012, but still lower than in 2007. Out-of-pocket spending grew 3.8% in 2012. Private health insurance spending for physician and clinical services grew at a faster pace while Medicare spending decelerated slightly in 2012.
The following categories saw an increased spending trend:
• Hospital spending increased 4.9% in 2012 compared to 3.5% in 2011.
• Spending on physician and clinical services increased 4.6% in 2012 compared to 4.1% in 2011.
• Spending for dental services increased 3% in 2012 compared to 2.2% in 2011. Out-of-pocket spending for dental services, which accounted for 4 2% of all dental spending, increased 3.9% in 2012 compared to 3.1% in 2011.
• Spending for other health, residential, and personal care services grew 4.5% in 2012 compared to 3.3% in 2011. This category includes expenditures for medical services that are generally delivered by providers at schools, community centers, the workplace, residential mental health centers, substance abuse facilities, and by ambulance providers.
• Spending growth for freestanding home health care agencies increased 5.1% in 2012 compared to 4.1% in 2011. Medicare and Medicaid spending accounted for 81% of total home health care spending in 2012. Medicare spending grew at a faster rate in 2012 while Medicaid spending slowed.
• Medicaid spending grew 3.3% in 2012 compared to 2.4 % in 2011. Federal Medicaid expenditures decreased 4.2% in 2012 while state and local Medicaid expenditures grew 15% — a result of the expiration of enhanced federal aid to states in the middle of 2011. The relatively low annual rates of growth in Medicaid spending can be explained in part by slower enrollment grow tied to improved economic conditions and efforts by states to control health care costs.

The following categories saw a decreased spending trend or stayed the same:
• Spending for independent health practitioners of physical therapy, optometry, podiatry, and chiropractic medicine increased 4.5%, which is about the same rate as in 2011.
• Spending for freestanding nursing care facilities and continuing care retirement communities increased 1.6% in 2012 compared to 4.3% in 2011. The slower growth was primarily due to a reduction in Medicare spending due to a one-time rate adjustment for skilled nursing facilities.
• Retail prescription drug spending grew 0.4% in 2012 compared to 2.5 % in 2011. Driving the low growth were reduced retail drug prices as numerous blockbuster drugs lost patent protection and generics became available.
• Retail spending for durable medical equipment (contact lenses, eyeglasses, and hearing aids) increased 5.6% in 2012, the same as in 2011.
• Retail spending for other non-durable medical products (over-the-counter medicines, medical instruments, and surgical dressings) grew 1.8% in 2012 compared to 3% in 2011.
• Medicare spending, which represented 20% of national health spending in 2012, grew 4.8% compared to 5% in 2011. With a new payment system, there was a one-time payment reduction to skilled nursing facilities in 2012 after a large increase in 2011.

In 2012, households accounted for the largest share of spending (28%), followed by the federal government (26%), private businesses (21%), and state and local governments (18%). The federal government financed 26% of total health spending in 2012, a slight decrease from 27% in 2011. In June 2011 saw the expiration of enhanced federal funding from the American Recovery and Reinvestment Act of 2009. Since states are no longer getting additional federal government aid, they have seen their share of the health care bill increasing from 17% in 2011 to 18% in 2012. For more information, visit

Last Updated 08/10/2022

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