ACA tax drove 2018 healthcare spending acceleration, CMS actuaries find

• Spending on hospital care increased from $1.1 trillion in 2017 to $1.2 trillion in 2018 but stayed at 33% of overall healthcare spending.
• Commercial health plans drove hospital revenue, with a 5.9% increase in hospital spending.
• A 2.1% increase in medical prices was blamed, in part, on greater economywide inflation.

The restarted federal tax on health plans in 2018 was the largest driver of increased spending on healthcare that year, according to federal actuaries.

The finding came from the annual report by the Office of the Actuary for the Centers for Medicare & Medicaid Services, which is considered the gold standard for healthcare spending statistics.

The effect of the tax was made clear by the finding that the amount of the economy devoted to healthcare increased even though there was no increase in personal healthcare spending from 2017 — when the tax was suspended for one year — to 2018. The $14.3 billion tax created by the Affordable Care Act (ACA) was collected from all nongovernment health plans, including Medicare Advantage and Medicaid managed care plans.

Anne Martin, an economist for the Actuary, said in an interview that the tax was responsible for much of the acceleration in healthcare spending, which grew by 4.6% in 2018 compared with 4.2% in 2017.

Although noit specifically tracked by CMS, health plans were believed to have passed along the cost of tax to employers and enrollees, Martin said.

Other key findings from the report included:

• Total healthcare spending increased from $3.5 trillion in 2017 to $3.6 trillion in 2018.
• The share of the economy going to healthcare spending declined from 17.9% in 2017 to 17.7% in 2018.
• The number of uninsured increased by 1 million, to 30.7 million.
• Growth in healthcare spending (4.6%) slowed to less than the growth in the gross domestic product (5.4%).

Where did the trillions in spending go?

The rates of spending increase for various healthcare sectors differed only a little from previous years, including:

• A lower increase in hospital spending (from 4.7% in 2017 to 4.5% in 2018)
• A lower increase in physician and clinical services (from 4.7% in 2017 to 4.1% in 2018)
• A higher increase in retail prescription drug spending (from 1.4% in 2017 to 2.5% in 2018)

Some spending changes stand out

Among the various components of healthcare spending, some experienced noteworthy changes in 2018:

• Overall growth in medical prices (2.1%) was the fastest since 2011.
• Commercial health insurance spending per enrollee increased by the highest amount (6.7%) since 2004.
• The generic-drug dispensing share increased by the smallest amount (0.3 percentage points, to 85.5%) since 2000.
• Spending on hospital care increased by the smallest amount (4.5%) since 2014.

What else happened with hospital spending?

Spending on hospital care totaled $1.2 trillion in 2018, or 33% of total healthcare spending.

Key spending statistics, according to the report, included:

• A 2.4% increase in hospital prices (compared with 1.7% in 2017)
• A 0.7% increase in inpatient stays (compared with 1.7% in 2017)
• A 5.9% increase in commercial health insurance spending on hospital care
•  A 4.6% increase in Medicare spending on hospital care
• A 2% increase in Medicaid spending on hospital care

Is there cause for concern?

Some of the new data may cause policy headaches for hospitals. For instance, some federal policy advocates regularly decry the share of overall healthcare spending going to hospitals. And that share remained unchanged at 33% in 2018, with the dollar amount increasing from $1.1 trillion in 2017 to $1.2 trillion.

Chad Mulvany, a director of healthcare financial practices with HFMA, said hospitals should pay attention to the healthcare spending debate.

“If we’ve got to reduce healthcare spending and one-third is going to hospitals, then guess what we have to reduce,” Mulvany said.

Critics also have blasted providers in recent years for price increases, which often are larger than inflation.

Although the increase in medical prices rose from 1.3% in 2017 to 2.1%, the report blamed some of that on greater economywide inflation. The Actuary also noted that the 2018 rate was less than the average annual rate from 2004 to 2007 and about the same as in 2008 to 2013.

The increase in prices at hospitals makes sense, Mulvany said, because the shift of low-acuity procedures to outpatient settings has left those organizations with a much larger share of costly patients with complicated conditions.