Altarum Center for Value in Health Care's second-quarter Health Sector Trend Report found that healthcare costs increased by 5% year-over-year in the past quarter, outpacing the first quarter (4.6%) and the overall first half of the year (4.8%).
Private payer spending has grown faster than public payers since 2016 though the difference closed slightly in the second quarter compared with the first of 2018, according to the report based on Census data.
Despite the moderate growth rate, Altarum warned several factors could accelerate cost growth, including changes to health insurance laws, an economic downturn and the impact of the aging population.
The health sector continues its stable, moderate growth in spending and hiring. Total spending on healthcare services grew at annual rates of between 4.3% and 4.8% in 2016, 2017 and the first half of 2018, the report said.
Despite the stable health costs, Altarum warned that policies that address problems like surprise billing and out-of-pocket drug costs may provide relief to consumers, but won't tackle the long-term budgetary challenges.
The report found that healthcare price growth is under control, especially for public payers. Another recent Altarum brief said that private payer spending has grown because of higher price growth and utilization compared to Medicare and Medicaid.
Medicare spending has remained in the 4% to 4.5% range, while private payer has exceeded Medicare's spending since 2011. Medicaid spending saw huge growth gains with Medicaid expansion taking effect in 2014 and 2015. However, that cost growth nosedived in 2016, partly because of states moving to managed care Medicaid.
The growth gap between private and payer insurers are wider when you remove the effects of enrollment growth. Private spending per enrollee increased by more than 50% since 2009 compared to about 15% for public payers.
The first quarter saw private payer spending growth spike by 7.4% in Q1 while public payer growth averaged just 2.3%. The difference in payer spending growth was closer in Q2. Private payers saw about 6% spending growth in Q2, compared to about 5% for public payers.
A major driver of healthcare spending is money spent on healthcare services. About 70% of healthcare spending comes from services. Healthcare services spending increased by 4.9% in Q2, which was more than the first quarter (4.2%). Spending growth in the quarter exceeded any quarter over the past two years though it’s still not a significant spike. Those increases are still a far cry from the 5.8% growth in 2015, which was the highest increase by far since 2010.
In two pieces of good news, healthcare price growth remains less than inflation and prescription drug costs are on the decline. Healthcare price growth was 2% in the second quarter compared to 1.75% a quarter earlier. Health price growth by quarter hasn't exceeded 2% since 2012. That price growth has been below inflation in each of the last four quarters.
Also, retail spending on prescription drugs grew by 3.4% in Q2 compared to 3.7% in Q1 and 4.7% for 2017. This trend may intensify as vertical mergers combine payers and pharmacy benefit managers. That could help drive down prices further.
The proposed mergers of CVS Health-Aetna and Cigna-Express Scripts, as well as payers like Anthem launching their own PBM and the watershed potential of Amazon eyeing the market, may impact drug prices in the coming year.