Recently released data show that national health spending accelerated in 2014, the initial year of Affordable Care Act (ACA) implementation, as more Americans gained health coverage through individual insurance or expanded Medicaid eligibility. While the uninsured population declined by 19.5%, or 8.7 million people, health spending climbed to $3 trillion, the equivalent of $9,523 per capita. That represents 17.5% of the Gross Domestic Product (GDP), up from 17.3% the year before. The greatest spending increase occurred in Medicaid and was mostly funded by the federal government. (See related infographic for a look at health care spending by payer over the past 50 years.)
How Much Did Health Spending Grow?
National health expenditures grew by $151 billion, or 5.3%, in 2014, the first year of ACA implementation. That was faster than the previous five years of historically low growth, which had ranged from 2.9% to 4%. Growth in national health expenditures in 2014 also exceeded overall economic growth by more than one percentage point, ending a four-year period in which it expanded at about the same pace as GDP (see Figure 1). The 5.3% growth rate was lower than the average annual increase of 5.9% experienced over the preceding 20 years (see Table 1). The uninsured population stood at 44.2 million in 2013 before dropping to 35.5 million in 2014.
Where Did Spending Growth Occur Among Payers?
Spending grew fastest in Medicaid, where it increased 11% (see Figure 2). Reflecting the federal commitment to fund Medicaid’s eligibility expansion in 2014, federal Medicaid spending accounted for $47 billion of the $49 billion increase in overall Medicaid spending. This amounted to an 18.4% increase in federal Medicaid spending, compared to the state Medicaid spending increase of 0.9%.
In using its purse to influence policy, the federal government’s 2014 actions as a payer were similar in scale to other major changes in health policy in the last decade (see Figure 3). For example, in 2006, as Medicare prescription drug coverage was implemented, Medicare spending increased by 18.8%, much faster than the overall 6.6% increase in health spending that year. Later, during the great recession, the federal government boosted its 2009 Medicaid spending by 21.8% as it enhanced federal Medicaid assistance to states. This move allowed cash-strapped states to maintain Medicaid coverage in the face of rising need and plunging state tax revenues.
With the federal government set to maintain a full commitment to Medicaid expansion through 2016 and to maintain support at the 90% level in 2020 and beyond, the 2014 figures may persuade anti-expansion states to revisit their decisions. Already, some states that were vocal in opposition to ACA expansion, such as Alabama, Louisiana, and South Dakota, have changed course and now are working to find ways to adopt Medicaid expansion for 2016.
Where Did Spending Growth Occur Among Sponsors of Health Care?
Spending by the federal government grew 11.7%, outstripping growth in health expenditures by households, employers, and state and local governments (see Figure 4.) The federal government’s increase included its funding of Medicaid expansion and subsidies for individual coverage under the ACA, as well as increases in existing federal programs such as Medicare.
Cost Per Enrollee Fell or Grew More Slowly
In 2014, the insured share of the population rose 2.8 percentage points to 88.8%, its highest level since 1987 (see Table 1). The influx of newly insured people appeared to improve or slow the growth in per enrollee cost. In Medicaid, the per enrollee cost declined 2% as nonelderly, nondisabled adults became eligible for Medicaid based on their income. California, which saw Medicaid enrollment grow 41% as compared to the national rate of 13%, could see an even larger impact on per enrollee costs. Among privately insured people, the cost per enrollee increased more slowly (3.2%) than overall per capita spending (4.5%).
What Does This Mean for the Future?
Coming on the heels of an extended period of low growth in health spending, the 2014 coverage expansions created an increase in overall health spending. The challenges going forward will be to ensure that this uptick does not establish a trajectory, and to hold future growth close to the rates of economic growth.
Katherine Wilson is an independent consultant specializing in health insurance markets and health care costs. She is the author of numerous publications and reports, including CHCF’s series of reports on California health insurers.