2 new studies illustrate the burden of healthcare costs in the pandemic era

• CMS actuaries reported that healthcare spending accelerated dramatically during the first year of the COVID-19 pandemic.
• Vastly higher federal spending was the big driver of the rise in spending growth.
• The growth in spending on hospital services was virtually flat.
• Significant numbers of Americans continue to report having trouble with healthcare costs, according to a new survey.

Two new reports reflect the cost burden of healthcare in the U.S. amid the COVID-19 pandemic.

An annual report from CMS’s Office of the Actuary found that healthcare spending in 2020 increased by 9.7% to reach $4.1 trillion, more than doubling the 4.3% increase of 2019 and marking the biggest change since 2002. And with GDP declining by 2.2%, healthcare’s share of national spending rose from 17.6% to 19.7%.

Reporting in Health Affairs, the actuaries wrote that the 2020 spending surge was due to a 36% increase in federal spending on healthcare in response to COVID-19. In 2019, by comparison, the increase in that segment was 5.9%.

The actuaries attributed the federal spending push to:

• Financial assistance to providers to help make up for lost revenue and increased expenses
• Funding to state Medicaid programs
• Increased public-health activity (including COVID-19 testing and vaccination programs)

The payer mix for hospitals changed

The growth in hospital spending was virtually flat, rising from 6.3% in 2019 to 6.4% in 2020, according to the actuaries’ report.

However, commercial insurance spending (-5.9%) and out-of-pocket spending (-12.6%) decreased in 2020, while the increase in Medicare spending (0.4%) slowed substantially. The reductions in the commercial and out-of-pocket segments stemmed in large part from drops in hospital inpatient days (-4.8%) and discharges (-9.8%).

“Growth in 2020 reflected a substantial amount of funding from other federal programs and faster increases in Medicaid spending [9.2%] for hospital care,” the actuaries wrote.

As measured by the Producer Price Index, hospital prices increased by 3.2% in 2020, compared with 2% in 2019.

Spending growth rose for physician and clinical services from 4.2% to 5.4%

“For these services, as was the case with almost all healthcare services, strong growth in federal program spending — primarily for the Provider Relief Fund and Paycheck Protection Program loans — far outweighed the negative or slow growth in private health insurance and out-of-pocket spending that was associated with less use of care in 2020,” the actuaries wrote.

Spending growth on retail prescription drugs dropped from 4.3% to 3%, “mainly because of slower growth in utilization and a decline in retail prescription drug prices.”

Out-of-pocket costs remain onerous

Excluding federal spending, national health expenditures increased by only 1.9% in 2020, compared with 4.3% in 2019.

“This was a function of less use of medical services and goods in 2020 both by those covered through health insurance as well as by those paying directly out of pocket,” the actuaries wrote.

Looking specifically at out-of-pocket costs, spending declined by 3.7%, stemming from a reduction in the use of services and in the number of uninsured. There were 31.2 million people without insurance in 2020, down by 1.9% from 31.8 million the year before.

The number of people with commercial insurance declined by 1.7 million, with 2.3 million losing employer-sponsored insurance and 0.6 million gaining coverage through the Affordable Care Act marketplaces. Medicaid enrollment increased by 3.7 million (5.1%), marking the largest increase since 2015.

Insurance coverage isn’t widespread or comprehensive enough to enhance affordability for large pockets of the country. Almost half of adults — 46% — report struggling to afford out-of-pocket healthcare costs, according to a Kaiser Family Foundation survey conducted in September and October.

“These shares are substantially higher than the shares who report difficulty affording other household expenses such as rent or mortgage, gasoline, monthly utilities, or food and groceries,” the KFF authors wrote.

In addition, some Americans are forgoing physician office visits (24%), mental health services (17%) and hospital services (13%) due to costs. Deferral of hospital services was higher for respondents from households with income under $40,000 (18%), as well as for Black (20%) and Hispanic (21%) respondents.

Regarding medications, 29% of respondents said that within the past year, they had not taken medicine as prescribed because of cost.