Why Healthcare Spending Is Rising Faster Than GDP

Healthcare spending is rising faster than GDP, and this doesn’t seem likely to change unless we have a serious conversation about prices, according to new research findings.

Average annual healthcare spending for individuals with employer-sponsored insurance increased to an all-time high of $5,641 in 2017, despite little change in the utilization of services overall, according to the Health Care Cost Institute’s (HCCI) annual Health Care Cost and Utilization Report. While overall spending growth slowed in 2017 compared to 2016, the report finds that prices continued to drive rising costs. 

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HCCI analyzed data from about 4 billion claims of more than 40 million individuals. Claims data come from four of the largest U.S. health insurance providers-Aetna, Humana, Kaiser Permanente, and UnitedHealthcare-representing about 26% of the employer-sponsored insured (ESI) population. 

The report also found that:

• Per-person healthcare spending grew 4.2% in 2017, driven mostly by prices of medical services; outpatient prices experienced the greatest year-over-year growth in 2017 with 5.7%.

• The overall use of healthcare services changed very little over the 2013 to 2017 period, declining 0.2%. In 2017, utilization grew 0.5% compared to 2016.

• Outpatient services had highest spending growth in 2017, increasing 5.1% 

“In this year’s report, we added estimates of the percent of people with insurance who did not use any healthcare services,” says study coauthor John Hargraves, senior researcher at the HCCI. “Over 25% of people with employer-sponsored insurance did not have any healthcare claims in 2017. The share varied widely by age group.”

Among those aged 55 to 64, 15.8% had no claims, compared to 40.4% of individuals between 19 and 25 years old. These statistics reflect claims filed under ESI coverage only.

“If an individual had no services billed under their ESI coverage, they would be classified as a non-utilizer; non-utilizers may have received healthcare that did not result in a submitted claim or was covered by a different insurance plan,” Hargraves says.

HCCI’s report examined four services categories:

• Inpatient, which accounts for 19.5% of health care spending in 2017. Between 2013 and 2017 inpatient spending per person increased 9.8%, despite a 5% decrease in the number of admissions.

• Outpatient, 28% of spending. Between 2013 and 2017, outpatient spending per person increased 19.3%, driven by the 18.9% increase in average prices; there was little change in the use of outpatient services.

• Professional services, 33.6% of spending, which includes office visits and the services provided in office settings. Between 2013 and 2017 professional services spending increased 12.7%, driven by the 12.4% increase in average prices; there was little change in the utilization of professional services.

• Prescription drugs, accounting for 18.9% of spending in 2017. While this reflects discounts negotiated from wholesale or list prices for prescription drugs, it does not account for manufacturer rebates provided in separate transactions, because these data are not available. Between 2013 and 2017, spending on prescription drugs increased 28.9%, average point-of-sale prices increased 25%, and utilization increased 3.1%.

Related article: Will Drug Price Hikes Impact Drug Spending?

“We were interested to see that the drivers of prescription drug spending appeared to shift in 2017, with increased utilization of prescription drugs driving most of the observed spending growth rather than prices,” Hargraves says. “Average prescription drug prices did increase by 1.4% between 2016 and 2017, but this was much lower than the growth we saw in earlier years. In contrast utilization increased 3.3% in 2017, after little change in previous years.”