Photographer: George Frey/Bloomberg

U.S. Health-Care Spending Probably Jumped 5 Percent in 2014

An analysis of new federal data indicates that five years of slow growth is ending

American health-care spending likely snapped a five-year streak of historically slow growth last year, according to an analysis of new federal data by private economists at the Altarum Institute.

The nation’s nearly $3 trillion medical bill grew 5 percent last year, compared with an average annual rate of 3.9 percent from 2009 to 2013, estimates Charles Roehrig, director of the nonprofit institute's Center for Sustainable Health Spending.

Altarum’s analysis draws on new data from the Census Bureau’s Quarterly Services Survey. The survey polls 19,000 American businesses across such service industries as hospitals, banks, and airlines. The increase in health-care spending will add around 0.2 percentage points to the fourth quarter's GDP growth, according to Bloomberg Intelligence calculations. That may be good news for the economy, but it could be cause for concern among policymakers trying to tame the nation's growing medical bill.

Revisions to previous quarters showed "a pattern of increasing growth rate over the year," Roehrig said. The data confirm earlier estimates by Altarum economists, which might be a sign that costs will accelerate in 2015.

Until the 2007-09 recession, health spending reliably increased more than 6 percent each year, far faster than the nation’s economy. That means the chunk of U.S. gross domestic product that went to health care increased every year. It was 5 percent in 1960. By 2000, it was 13.4 percent.

But from 2009 to 2013, health spending remained stable at about 17.4 percent of the U.S. economy, according to official government tallies. The government's numbers for 2014 spending won't be out until the end of this year.

For years, economists and policymakers have debated the root cause of the recent spending slowdown. Was it mostly a consequence of the recession, when millions of people lost their jobs and health insurance? Or did changes to the health-care system, such as trying to remove doctors’ incentives to provide unnecessary care, actually change the direction of what economists call the “cost curve?

Roehrig said much of the slower growth after the recession can be attributed to lower inflation across the economy. A series of big drugs losing patent protection also contributed, as did lower Medicare spending on some services.

The pickup isn't totally unexpected. Job growth is recovering, millions of people are newly insured under the Affordable Care Act, and prescription drug costs are growing at the fastest rate in years. Altarum's 5 percent estimate for growth in 2014 is actually lower than the 5.6 percent projection by federal economists at the Centers for Medicare and Medicaid Services.

While Roehrig finds little evidence that recent reforms changed the rate of growth, he said that over decades, the amount by which increases in health spending have exceeded GDP growth has narrowed. "There’s more evidence now that we’ve been on a long-term steady decline in the excess growth rate," he said. The good news is that if the trend holds, U.S. health spending will eventually stabilize. The bad news, according to Roehrig's analysis, is that it wouldn't happen until health-care accounts for about 25 percent of the American economy.

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