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Obamacare Expansion, Drug Prices Raised National Health Spending

By Kerry Young, CQ Roll Call

December 2, 2015 -- The health care law's coverage expansion and rising drug prices helped drive up medical spending by 5.3 percent last year, breaking a five-year cycle of historically low annual growth averaging 3.7 percent, according to federal data released Wednesday.

The $3 trillion in spending may add pressure on Congress to discuss ways to rein in health costs, especially drug prices. 

The Centers for Medicare and Medicaid Services' (CMS) analyses of national health spending are closely monitored by analysts.

The broadening of public and private coverage through the 2010 law helped boost spending, CMS reported.

The number of people lacking health insurance in 2014 fell by 8.7 million, a decline of 19.5 percent, CMS said. 

Medicaid enrollment grew by 7.7 million people last year, as 26 states and the District of Columbia raised income limits to allow more people to gain coverage through the federal-state program for the poor. That was an increase of 13.2 percent, compared with 1.7 percent in 2013.

The launch of new state and federal insurance marketplaces helped raise enrollment in private health plans by 2.2 million last year, CMS said. 

Private health insurance spending rose by 4.4 percent to $991.0 billion between last year and 2013. Medicaid spending rose by 11.0 percent to $495.8 billion.

The introduction of costly medicines, including Gilead Sciences Inc.'s Sovaldi hepatitis drug, stands out as a driver in national health spending last year, said Gary Claxton, director of the health care marketplace project at the Kaiser Family Foundation. Lawmakers in both parties and chambers have called for a closer look at drug pricing in recent weeks, with Sovaldi's $1,000 per pill cost cited as an example.

CMS' new research shows that spending on prescription drugs rose by 12 percent to $297.7 billion.

"That will get some scrutiny," said Claxton, who was a deputy assistant secretary for health policy at the Department of Health and Human Services in the Clinton administration.

Excluding the fiscal shock of the hepatitis drug, national health spending appears fairly stable, Claxton said. He was struck by a calculation showing that health spending last year grew only 1.2 percentage points faster than the overall economy in 2014, with nominal gross domestic product increasing 4.1 percent.

"Given that it's in the same year that you did have the drug anomaly and you had a whole bunch of new people get insurance, that's actually pretty remarkably low," Claxton said, adding that health researchers would have judged this growth rate a win in the past.

Equally surprising is how relatively constant health care's bite on the national economy has remained during the rollout of the 2010 law, Claxton said. The share of gross domestic product spent on health care was 17.5 percent last year, up from 17.3 percent in 2013.

Another major reason for the increase in medical expenses was a 12.4 percent increase in the net cost of health insurance, which rose from $173.2 billion to $194.6 billion, the report found. This includes administrative costs for running the insurance programs along with taxes and fees, according to CMS.

CMS on Wednesday also reported that:

  • The insured share of the total population inched up from 86 percent in 2013 to 88.8 percent last year—the highest share since 1987.
  • Medicare spending rose by 5.5 percent to $586.3 billion to $618.7 billion. Enrollment in Medicare rose by 3.1 percent last year, little changed from an increase of similar 3.2 percent in 2013.
  • While Medicaid rolls expanded, the rate of spending per enrollees dropped 2 percent in 2014 after rising 4.1 percent in the previous year. Many of the new enrollees were children and people of working age, who tend to be less expensive to care for than the older and disabled people served by the program.

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