Prescription drug costs leading cause of healthcare spending increase, actuary says

In 2014, per-capita healthcare spending grew by 4.5 percent and overall health spending grew by 5.3 percent, according to a study by the Office of the Actuary at the Centers for Medicare and Medicaid Services first published by Health Affairs, a journal of health policy and research.

One of the leading causes of the rise is spending on prescription drugs.

Prescription drug spending grew by 12.2 percent in 2014, compared to 2.4 percent growth in 2013, fueled largely by new medicines, particularly for specialty drugs such as those used to treat hepatitis C, according to the study.

Retail prescription drug spending in 2014 grew to $297.7 billion.

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The increase was also affected, though by a smaller degree, from patent expirations and price increases for brand-name drugs, the study said.

Private health insurance, Medicare, and Medicaid spending growth for prescription drugs all accelerated in 2014, it said.

Also, spending has risen since 2013 due to more people gaining health insurance through federal and state exchanges established by the Affordable Care Act, CMS said.

Overall, healthcare spending grew 1.2 percentage points faster than the overall economy in 2014, resulting in a 0.2 percentage-point increase in the health spending share of gross domestic product – from 17.3 percent to 17.5 percent.

In the decade prior to the Affordable Care Act, from 2000-2009, healthcare spending grew by an average of 6.9 percent annually, 2.8 percentage points faster than GDP, according to CMS.

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Despite the recent spending increases, the rates are below most years prior to passage of the ACA, according to CMS.

Also, consumer out-of-pocket spending grew by only 1.3 percent in 2014, as compared to 2.4 percent growth in 2013, it said, reflecting the increased number of individuals with health coverage.

On a per-enrollee basis, overall spending increased by 3.2 percent in private health insurance and 2.4 percent for Medicare and decreased by 2.0 percent in Medicaid, the study said.

Under the ACA, 8.7 million individuals gained coverage in 2014 compared to 2013. As a result, the insured share of the population increased from 86 percent in 2013 to 88.8 percent in 2014, the highest share since 1987, according to the study's authors.

"Today's report reminds us that we must remain vigilant in focusing on delivering better healthcare outcomes, which leads to smarter spending, particularly as costs increase in key care areas, like prescription drugs costs," said Andy Slavitt, acting administrator for CMS.

Total private health insurance expenditures, which represent 33 percent of total healthcare spending, reached $991 billion in 2014, and increased 4.4 percent, faster than the 1.6 percent growth in 2013, which was the slowest rate since 1967.

The faster rate of growth reflects expanding coverage through marketplace plans, health insurance premium tax credits, new industry fees, and changes to benefit designs.

Medicare spending, which represented 20 percent of national health spending in 2014, grew 5.5 percent to $618.7 billion, a faster increase than the 3 percent growth in 2013, according to the study.

The 2014 rate of growth was driven by increased spending growth for retail prescription drugs and in Medicare Advantage, it said.

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Medicaid spending accounted for 16 percent of total spending on health and grew 11 percent in 2014 to $495.8 billion, a faster increase than the 5.9 percent growth in 2013, according to the study.

Growth in 2014 was driven by Medicaid expansion, as 26 states plus the District of Columbia provided coverage for individuals with incomes of up to 138 percent of the federal poverty level.

An estimated 6.3 million newly eligible enrollees were added to Medicaid in 2014.

Out-of-pocket spending, which includes direct consumer payments such as copayments, deductibles, and spending not covered by insurance, excluding premiums, grew 1.3 percent in 2014 to $329.8 billion, slower than annual growth of 2.1 percent in 2013.

The slowdown in 2014 was influenced by the expansion of insurance coverage and the corresponding drop in the number of individuals without insurance.

Twitter: @SusanJMorse