Jan. 7—Continued historic lows in healthcare spending growth continued in 2012 due primarily to the lingering effects of the recent recession, according to a leading federal authority on healthcare expenditures.

Healthcare spending increased by 3.7 percent in 2012 to $2.8 trillion, which was slower than the 4.6 percent growth of the overall economy, according to the annual health inflation report from the U.S. Department of Health and Human Services' Office of the Actuary. The slower health spending increase led healthcare’s share of the economy to shrink slightly from 17.3 percent to 17.2 percent.

Faster growth in hospital services (4.9 percent) and in physician and clinical services (4.6 percent) in 2012 was mitigated by slower growth in prices for prescription drugs (0.4 percent) and nursing home services (1.6 percent), according to the report.

Private health insurance spending remained near historically low rates in 2012, "largely influenced" by the nation's modest economic recovery from the recent recession and its continued reduction in private insurance enrollment, according to the report. Conversely, the actuary concluded that the Affordable Care Act (ACA), which was enacted in March 2010, had a "minimal impact" on overall national health spending growth through 2012.

Federal healthcare spending increased due to several ACA provisions implemented in 2010 and 2011, such as closing the Medicare drug coverage gap known as the doughnut hole. But other ACA provisions reduced federal spending, such as a 2012 Medicare payment reduction for most providers.

In Medicare, enrollment increased even as the program’s spending growth slowed, which mainly was due to the lower payment updates.

Slowing Medicaid enrollment growth in 2012 kept that program’s spending increase near historic lows. 

Hospital Growth Detailed

Health spending on hospital care increased by 4.9 percent in 2012 and reached $882.3 billion. That rate was an acceleration from 3.5 percent growth in 2011. The actuary attributed the increase to both price and nonprice factors. Specifically, price growth—as measured by the Producer Price Index for hospital services—increased 2.5 percent, compared with 2.1 percent growth in 2011. Acceleration in nonprice factors included the use and intensity of services.

Private health insurance (36 percent share) and Medicare (27 percent share) were the sources of payment for nearly two-thirds of all hospital care, and spending growth for both accelerated in 2012. 

Private health insurance payments to hospitals accelerated from 4.5 percent in 2011 to 5.8 percent in 2012. That increase resulted from both more people covered by private health insurance and faster growth in per-enrollee spending for hospital services.

Medicare spending for hospital services increased by 4.5 percent in 2012, compared with 3.6 percent in 2011. Medicare expenditures grew as more Baby Boomers were added to the program.

Medicaid hospital spending also grew faster in 2012. It increased by 4.1 percent in 2012, up from 1.7 percent in 2011. However, the hospital Medicaid spending was still much slower than the annual 7.3 percent increase during the four years of the recent recession.

Publication Date: Tuesday, January 07, 2014