Health Care Spending Stabilized in 2017

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The federal government’s chief health care actuaries have released their wrap-up of 2017 National Health Expenditures, showing that health care spending remained nearly the same percentage of the economy as in 2016: 17.9 percent.

The actuaries saw 2017 as a solidification of the post-Great-Recession slowdown in health care cost growth. Other than in 2014 and 2015, the last decade has seen health care spending grow at the same rate as the economy — a substantial slowdown from the historical average.

There was a spike in spending in 2014 and 2015 due to the newly insured from the Affordable Care Act (ACA) and from increased prescription drug spending.

One reason spending growth slowed in 2017 was that the number of uninsured grew for the first time since passage of the ACA. Other contributors to the slowdown included slower spending growth for hospital care, physician and clinical services, retail prescription drugs, and a decline in the use and intensity of those goods and services. The growth in per-capita spending on health care also slowed overall.

Medicare spending, which makes up 20 percent of all national health expenditures, increased at about the same rate in 2016. Traditional fee-for-service Medicare, which is two-thirds of all Medicare spending, grew by 1.7 percent, similar to 2016.

Private Medicare plan spending (Medicare Advantage) increased by 10 percent in 2017, up from 8.1 percent growth in 2016. This was due primarily to increased enrollment, although per-enrollee spending also grew faster in 2017 than in 2016 due to faster growth across all service categories, especially hospital and physician services.

The Trump administration has recently discussed some proposals that have the potential to help efforts to control the growth of health care costs.

Health and Human Services Secretary Alex Azar has suggested a return to testing some mandatory payment models, including those that bundle payments for specific types of care. Making models mandatory allows for much better testability and research into how to best control costs. Bundled payments are one of the most promising reforms for controlling costs without harming patient care.

The administration has also announced some promising ideas for controlling prescription drug costs — an area of health care policy where there might be opportunity for bipartisan action when the new Congress begins in January.

One set of proposals involves different options for lowering Medicare Part D and Medicare Advantage drug costs. These options include increasing price transparency and allowing Medicare to remove drugs from coverage under certain conditions — for example, if their price increases too rapidly. Another set of proposals deals with reducing the perverse incentives for prescription drugs in Medicare Part B, where doctors currently get paid more by prescribing and administering more expensive drugs.

Ultimately reducing the growth of health care costs is crucial towards putting the nation on a better fiscal path. Hopefully the Trump administration will go beyond words and push for carefully considered regulatory activity on their proposals, while also working with the congressional leadership over the course of the next Congress to make legislative progress.

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