Health Inflation Remains Tame, Spending Trending Down

ANN ARBOR — A combination of a resurgent economy and the Affordable Care Act have produced major increases in health care spending over the past two years, but the effects of those factors are beginning to wind down.

That’s according to the monthly Health Sector Economic Indicators from the Center for Sustainable Health Spending at the Ann Arbor-based research and consulting firm Altarum Institute.

Health spending in October was up 5.5 percent compared to October 2014, continuing the slowdown from the peak of 6.8 percent growth in February 2015. This puts 2015 on track for about 6 percent growth, a significant increase over the 5.3 percent growth just reported for 2014.

The official estimate of health spending growth in 2013 was revised downward to a record-low 2.9 percent and, as a result, the estimated health spending share of gross domestic product is now below the 18 percent threshold.

Health care prices in October 2015 were 1.2 percent higher than in October 2014, up from 1 percent in September, a rate that tied the multi-decade low hit in August 2013. Year-over-year hospital prices surged to 1.5 percent growth due to higher Medicare prices as fiscal year 2016 began. Prescription drug prices rose 3.7 percent, continuing a downward trend from the multi-decade high of 6.4 percent seen in 2014.

The health sector added 23,800 jobs in November, a solid increase but much lower than the unusually large gains seen in each of the past 7 months. The health share of total employment remained at the record high 10.7 percent first reached in October. Health jobs grew 3.2 percent year over year, while nonhealth jobs grew by 1.7 percent.

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“Much has been made of the 5.3 percent growth in health spending reported for 2014, the highest rate during the Obama presidency,” said Charles Roehrig, director of the center. “Our data suggest that growth will be higher in 2015, fueled by an even larger impact of expanded coverage and barely slower growth in spending on prescription drugs. However, these effects have peaked in early 2015, and spending rates have begun to trend down in our data. We are optimistic that 2014 and 2015 will appear as an interruption, not an end, to historically low growth rates in health spending.”

Please see Altarum’s Health Affairs blog posts, The Impact of New Hepatitis C Drugs on National Health Spending and Expanded Coverage Appears to Explain Much of the Recent Increase in Health Job Growth.

Altarum employs almost 400 individuals and is headquartered in Ann Arbor, with additional offices in Washington, DC, Silver Spring, Md., Rockville, Md., Portland, Maine, and San Antonio, Texas.

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