• October 2013

Why Did Health Care Spending Growth Slow in 2012—And how will it impact your bottom line?

For the third consecutive year, the growth rate of health care spending among privately insured people under age 65 remained low in 2012, growing 4.0 percent, slightly lower than in 2011 (4.1%), according to the Health Care Cost Institute (HCCI).

Health care spending averaged $4,701 per person, with employer-sponsored coverage in 2012 up $181 from the year before. Forty-five percent of the additional dollars were due to more spending on outpatient care. In addition, out-of-pocket spending rose more quickly than expenditures per person in 2012, increasing 4.8 percent to $768 for each individual.

The 2012 Health Care Cost and Utilization Report [see link below] provides a picture of health care spending for the nearly 156 million Americans younger than age 65 with employer-sponsored health insurance in 2012. This year’s report, the third in an annual series, analyzes private insurance claims data from 2009-2012, representing over 25 percent of the nation’s privately insured population.

Key trends that HCCI reported on in this year’s report include:

  • Spending grew fastest for young adults, women, and for people living in the Northeast.
  • After three years of slowing growth, spending per person on prescription drugs and devices reversed course, growing 3.8 percent in 2012, due mainly to increased use and rising prices for generic drugs.
  • Inpatient spending grew slower (2.4%) than any other medical service category in 2012, while spending on outpatient services grew at the fastest rate (6.5%).
  • As in past years, price increases rather than use of services remained the primary cause of spending growth for outpatient and inpatient facility claims. Prices rose 5.4 percent for inpatient services, and 5.6 percent for outpatient services.
  • For the first time since the end of the recession, increases in expenditures for professional procedures and generic prescriptions were due mainly to increased use, not increased prices.

“Although average health-care expenditures grew at nearly the same rate in 2012 as 2011, the causes of the 4 percent increase in spending each year were quite different,” said HCCI Executive Director David Newman. “In prior years, rising health-care prices drove up spending. In 2012, we saw utilization start to change health care trends for prescription drugs and professional procedures. Preliminary evidence suggests this may be indicative of a larger shift in care as people search for lower-cost care alternatives.”

Other Report Highlights:

Outpatient spending also continues to climb. For the third year, spending grew fastest for outpatient care compared to the other service categories, rising 6.5 percent to $1,315 per person in 2012. Prices also rose fastest for outpatient care, increasing 5.6 percent. The price of an outpatient visit—for example to an emergency room—averaged $2,457, and the price for other outpatient services—for example diagnostic imaging—averaged $192.

Out-of-pocket spending for consumers continued to rise. In fact, it grew faster than health-care-payer expenditures. In 2012, consumers shouldered 16.3 percent of all health care costs, spending an average of $768 per person on copays, coinsurance and deductibles—$35 more than in 2011.

  • Per person, older adults (55-64) spent the most out-of-pocket ($1,265), and children younger than age 18 accounted for the least ($427). Women spent more out-of-pocket ($883) than did men ($647). The growth rate for out-of-pocket expenditures for women (5.0%) was higher than for men (4.4%).
  • Nearly half (43.4%) of all out-of-pocket dollars were spent on professional procedures, such as doctor visits and lab tests. Over a quarter (25.9%) of consumer dollars were spent on outpatient services.

Unlike previous years, prices for generic prescriptions climbed. These increased 5.3 percent in 2012. Use of generic drugs has been steadily increasing, and rose by nearly 8 percent from 2011. As a result, spending on generic prescriptions jumped by 13.5 percent in 2012, rising $33, from $244 per person to $277 per person. HCCI also found that brand name prescription spending fell by 0.6 percent, largely due to a 20.7 percent decline in use in 2012. The drop in spending occurred despite a 25.4 percent increase in brand name prescription prices.

Differences in expenditures by gender also increased. In 2012, per capita spending averaged $5,246 for women compared to $4,125 for men. Although women typically spend more than men on health care, the gap appears to be widening. Spending for women grew at a faster rate (4.2%) than spending for men (3.7%) in 2012. In 2011, women spent $5,034 and men spent $3,977.

Young-adult spending grew the fastest. Health care spending rose faster (5.4%) for young adults (19-25) than for any other age group. In contrast, the oldest adults (55-64) experienced the slowest health-care spending growth—2.5 percent. Young adults continued to have some of the lowest expenditures ($2,548 per person) while the oldest adults had the highest ($8,920 per person).

Some good news: The cost of inpatient care slowed. Spending on hospital care increased 2.4 percent, a slower rate of increase than in all other service categories. Hospital admissions declined (-2.9%), while prices for inpatient services increased 5.4 percent, averaging $16,421. The highest spending for major diagnostic categories in hospitals was for musculoskeletal disorders, circulatory conditions, and pregnancy and childbirth.

Regional spending gaps persisted. Per capita spending on health care was highest in the Northeast ($4,868) and lowest in the West ($4,382). Consumers in the Midwest and the South spent the highest amounts of their own dollars on health care ($801 and $834 per person, respectively). Out-of-pocket spending also grew fastest in the Midwest and South (5.5% for each) for the third year in a row.

About the Health Care Cost Institute—and Its Analysis

The Health Care Cost Institute was established to promote the study of the cost and utilization of health care services and to better understand the forces driving health care spending in the United States. Several independent researchers are now working with HCCI’s data and are undertaking studies on hospital markets, prices, and the impact of the recession.

HCCI’s analysis is based on de-identified Health Insurance Portability and Accountability Act (HIPAA) compliant claims data from more than 50 million Americans per year from 2007 to 2012. Aetna, Humana, and UnitedHealthcare, three of the nation’s largest health insurance providers, provided claims data. Future reports from HCCI will include data from Kaiser Permanente. HCCI does not report on premiums. All price and spending trends reported by HCCI are current or nominal dollars.

Launched in September 2011, HCCI believes an improved understanding of the forces driving health care cost growth will help policymakers, researchers, and the public make decisions that will lead to better and more accessible and affordable care.

For more information, visit www.healthcostinstitute.org.