New Report Assesses Government Health Care Roles, Sounds Alarm Bell on Prescription Drug Spending

Katherine Wilson, Wilson Analytics

May 18, 2016
Katherine Wilson
Katherine Wilson

CHCF's update of Health Care Costs 101 looks at the ACA's impact on household spending, shows how big the federal role is in the private health insurance market, traces a spike in drug spending, and offers a fresh approach to tracking spending by medical condition.

The new 2014 figures show that a modest acceleration in health spending yielded huge gains in insurance coverage in 2014. Overall, spending increased 5.3%, compared to 2.9% growth the prior year.

At the same time, the share of the population with health insurance coverage expanded from 86% to 88.8%. The majority of the newly insured gained coverage through Medicaid, while others purchased insurance directly, often with government premium subsidies.

The new report also finds that the ACA did not place an additional burden on households in 2014. Despite the rising number of people purchasing insurance directly, aggregate household spending for it increased only 2.2%. At the same time, the number of people directly purchasing insurance expanded by 19.5%. This suggests the federal subsidies were well calibrated and that overall, the subsidies cushioned households against large spending increases for direct-purchase insurance.

Changes in Household Health Care Spending, US, 2014

Government subsidies operate on a sliding scale, providing premium tax credits and reduced cost-sharing for services. Federal subsidies for individual insurance totaled $18.5 billion, or 2% of private health insurance.

Sponsors of Private Health Insurance, US, 2014

Medicaid Spending Grew 11% Under ACA

Total spending on Medicaid increased 11%, primarily due to coverage expansion. Federal Medicaid spending grew by 18.4% ($47.4 billion) compared to 0.9% for the states, as the federal government funded expanded Medicaid eligibility in participating states. Medicaid enrollment increased 13.2% nationally. The influx of nondisabled working-age adults into Medicaid helped to lower its per-enrollee costs (from $7,676 to $7,523).

Spending on Drugs: Signs of Trouble Ahead?

Spending on prescription drugs increased 12.2% in 2014, the fastest pace since 2002. This signaled the end of a multiyear period of slow growth related to expiring patents and increased use of generics. Prescription drugs grew faster in 2014 than any other personal health care spending category and accounted for a disproportionate share of the increase. Despite making up only 10% of health care spending, prescription drugs accounted for 20% of the overall health care spending increase. The increase in prescription drug spending was due in part to spending on new medicines, particularly specialty drugs. New hepatitis C drugs alone ($11.3 billion) accounted for more than one-third of the increase in prescription drug spending. The recent shift toward astronomically high-cost medications offsets other progress toward cost control.

Annual Growth Rates of Largest Spending Categories, US, 1994-2014

New Information on Spending by Medical Condition

Exciting new information from the Bureau of Economic Analysis makes it possible to know more about which medical conditions drive the most spending. The conditions for which the most money is spent are routine care, circulatory conditions (including hypertension), and musculoskeletal conditions (including back problems and arthritis). The new measures also allow economists to track trends in case numbers and cost per case. Knowing what conditions drive costs may help focus future prevention and treatment efforts. Watch for further developments on spending by medical condition.

Health Spending by Medical Condition, US, 2012

See the complete report, Health Care Costs 101.