Price increases, population growth drive majority of rising healthcare spending
Healthcare spending increased by $933.5 billion between 1996 and 2013 and increases in healthcare service price and intensity were related to more than 50% of the increase, according to a recent JAMA report.
The researchers analyzed five possible factors to spending increases: change in population size, population aging, disease prevalence or incidence, service utilization and service price and intensity. They found that the five factors’ impact on spending varied by type of care and health condition.
They said service utilization was connected to both increases in spending for ambulatory care and retail pharmaceuticals and reductions in spending for patient care.
The study found that after adjusting for price inflation, annual healthcare spending on inpatient, ambulatory, retail pharmaceutical, nursing facility, emergency department and dental care increased from $1.2 trillion to $2.1 trillion between 1996 and 2013.
Which factor is most to blame? They found that:
Increases in US population size were associated with a 23.1% or a $269.5 billion spending increase;
Aging of the population was connected to an 11.6% or a $135.7 billion spending increase;
Changes in disease prevalence or incidence were related to spending reductions of 2.4% or a $28.2 billion decrease;
Changes in service utilization were not associated with a statistically significant change in spending; and
Changes in service price and intensity were associated with a 50% or a $583.5 billion spending increase.
In announcing their conclusions, the researchers said policymakers can review the findings to understand the factors and create policy to contain healthcare spending. The results were mostly predictable — more people and aging Americans increase costs and preventing disease lowers costs. Of note, utilization did not really influence healthcare cost growth either way.
This might be explained in part as health insurers haven't ramped up cost-saving policies, payment changes and benefit designs until the past few years. This study only looked at data until 2013. Moving forward, utilization will be a factor to keep an eye out for, particularly as payers attempt to cut utilization, particularly among hospitals.
As the healthcare cost increases show, healthcare is becoming increasingly unaffordable for Americans. Another recent JAMA report suggested one solution to help with rising costs is the Affordability Index as a way to help Americans with rising healthcare bills. The index would be a “ratio created by dividing the mean cost of an employer-sponsored family health insurance policy by median household income. This index relates health insurance costs to household incomes over time.”
As an example, the report said the 2016 index would have been 30.7%.
“This measure of health insurance costs as a percentage of wages reveals the direct relationship between healthcare costs and salaries. Higher healthcare costs depress incomes,” the authors wrote. However, they also acknowledged the index has potential disadvantages, including that it only pertains to employer-sponsored insurance and that premiums don’t “capture all financial burdens of healthcare on individuals.”