By Bonner R. Cohen
This article was originally published by The Heartland Institute on March 11, 2020.
Average annual health care spending for people with employer-sponsored insurance rose to an all-time high in 2018, according to a recent report.
Per person spending rose to $5,892, according to the report, published in February by the Health Care Costs Institute (HCCI). Researchers used data from over 2.5 billion medical and prescription drug claims for approximately 40 million individuals under the age of 65 enrolled in employer-sponsored health insurance annually between 2014 and 2018. It relies on de-identified commercial health insurance claims contributed by Aetna, Humana, Kaiser Permanente, and UnitedHealthcare.
Four categories of service were examined in the report: inpatient admissions, outpatient visits and procedures, professional services, and prescription drugs. All data were weighed to reflect the age, sex, and the geographic mix of the employer-sponsored population. Key findings include:
-The 2018 average per-person spending of $5,892 includes amounts paid for medical and pharmacy claims but does not subtract difficult-to-obtain manufacturer rebates for prescription drugs.
-Average out-of-pocket spending increased to $907 per person. Health care spending grew by 4.4 percent in 2018, slightly above growth in 2017 of 4.2 percent, and the third consecutive year of growth above 4.0 percent.
-After adjusting for inflation, prices accounted for three-quarters of spending growth between 2014 and 2018, contributing $453 to per-person spending over the five-year period.
-Average process grew 2.6 percent in 2018. Although that is the lowest rate of growth over the period, consistent year-over-year price increases mean that prices were 15 percent higher in 2018 than in 2014.
-Utilization grew 1.8 percent from 2017 to 2018, the fastest pace observed during the five-year period. Because of the higher price levels, the effect of the increase in utilization in 2018 on total spending was higher than it would have been in 2014.
Factors Contributing to Spending Growth
After accounting for inflation, health care costs rose $610 over the five-year period. The report found three factors contributed to this increase.
Seventy-five percent of the growth, or $453, can be attributed to price growth in medical services. Twenty-one percent, or $210, is due to increases in quantity of services used with much of that occurring in the last year of the five-year period, and four percent, or $27, of the increase is related to an aging employee workforce.
Between 2014 and 2018, health care spending per person for individuals with employee-sponsored insurance grew at an average annual rate of 4.3 percent, above the 3.4 percent average annual rate of growth in U.S. per capita GDP, the report found. Price growth for health care continued to slow, the report pointed out, rising on average 2.6 percent in 2018, the lowest rate of growth between 2014 and 2018.
Different Trends in the States
Along with its report, HCCI released an “interactive dash board” that shows health care pricing trends state by state.
At $7,974, Alaska had by far the highest per-person spending in 2018. Other high-cost states are Wyoming ($7,217), West Virginia ($7,138), New Hampshire ($7,090), Wisconsin ($6,772), New York ($6,734), and New Jersey ($6,708). Arkansas had the lowest per-person spending at $4,734, followed by Utah ($4,767), Arizona ($5,049), Kansas ($5,108), Maryland ($5,147), and Nevada ($5,270).
The state-by-state comparison contains some surprises. West Virginia, for example, is generally not considered a high-cost state. Yet it ranks near the top in the recent rise of per-person health care costs. The HCCI report offers no speculation on this, but West Virginia’s higher costs could reflect the opioid crisis, which has hit the Mountaineer State particularly hard.
In the 2014-2018 timeframe, spending increased in every state, varying from 9.7 percent in Maine to 28.4 percent in New York. Average prices also increased in every state between 2014 and 2018, with the highest price growth in the District of Columbia (20.6 percent) and the lowest price growth in Louisiana (9.5 percent).
“Sixteen states had price growth above the national average, with D.C. and New York seeing prices rise above 20 percent between 2014 and 2018,” John Hargraves, a senior researcher at HCCI, stated at a press conference. “Prices grew less than 11 percent in only two states, Mississippi and Louisiana.”
Jane Fuglesten Biniek, another senior researcher at HCCI, emphasized the importance of the data contained in the report.
“One-hundred-fifty million people in the U.S. have employer-sponsored health insurance and, historically, there has not been a lot of information about them as a group,” Fuglesten Biniek said.
Health Care Cost Institute, 2018 Health Care Cost and Utilization Report, February 2020:
Hargraves, John, Fuglesten Biniek, Jean, Fehn, Jason, 2018 Health Care Cost and Utilization Report, State Spending Trends, (interactive version), February 19, 2020, Health Care Cost Institute:
Bonner R. Cohen, Ph.D. is a senior fellow at the National Center for Public Policy Research and a senior policy analyst with the Committee for a Constructive Tomorrow.