Health spending grew at a rate slower than overall economic growth in 2018, though expenditures were up for major payers thanks in large part to the reinstatement of the Affordable Care Act’s health insurance tax, a new report shows.
The Centers for Medicare & Medicaid Services (CMS) Office of the Actuary released its 2018 National Health Expenditures report Thursday, which showed national health spending grew by 4.6% last year, while gross domestic product grew by 5.4%.
This shrinks healthcare’s segment of the economy from 17.9% in 2017 to 17.7% in 2018, according to the report. Spending did grow at a higher rate than in 2017, however, when spending grew by 4.2%.
“Except for the slight uptick that was driven primarily by the one-time impact of the reinstated health insurance tax, growth in 2018 was relatively stable,” the researchers wrote in a report published by Health Affairs.
The health insurance tax, created as part of the Affordable Care Act, was in place for 2018 but put on hold in 2019. Whether insurers will be hit with the levy in 2020 remains to be seen.
The tax is widely unpopular among health plans, and CMS’ report makes it clear why they hate it: The federal government collected $14.3 billion in 2018 and is projected to rake in $16 billion in 2020 if the tax is reinstated.
Spending increased across the board for private insurance, Medicare and Medicaid in 2018 as a result, according to the report.
“The effects of this tax were seen most prominently in the three largest payers: private health insurance, Medicare and Medicaid,” Anne Martin, an economist in the Office of the Actuary and one of the report’s authors, said during a press briefing Thursday morning.
Total spending for private payers increased by 5.8% in 2018, according to the report, and per-enrollee expenditures went up by 6.7%.
In Medicare, spending overall increased by 6.4% last year, driven in large part by an 11.8% increase in spending among private Medicare Advantage and Part D plans. Private Medicare plans account for 36% of spending in the program nationally, a number that’s growing.
Medicaid spending increased by 3% in 2018, again driven by higher spending among private managed care plans thanks to the health insurance tax, according to the report.
CMS’ report does not delve into how individual payers responded to the tax, but the actuaries said at the briefing that those costs were likely shifted to members through premium hikes or other cost-sharing. Analysts at Oliver Wyman estimate that if the tax is reinstated premiums will increase by 2.2% in 2020.
Higher price growth offset by decline in service use, intensity
Spending on hospital care increased by 4.7% in 2018, on par with the year before, according to the report. Prices, however, increased by a notably wider margin: by 2.4% in 2018 compared to 1.7% the year prior.
Those price increases were offset by declines in the use and intensity of services, according to the report. Total inpatient days grew by just 0.7% in 2018, compared to 1.7% growth in 2017.
Spending on hospital services totaled $1.2 trillion in 2018, according to the report.
CMS’ actuaries identified a similar trend in spending for physician and clinical services in 2018. Total spending in this area increased by 4.1% last year to $725.6 billion, down from a 4.7% increase in 2017 and the third year of slowed growth in a row.
Prices for physician and clinical services increased by 0.7% in 2018 compared to 0.4% the year before, while lower use and intensity of services again helped to contained spending growth.