March 16, 2018

Health Care Price Growth Reaches Five-year High, Employment Growth Remains Moderate

ANN ARBOR, MI—Altarum’s latest Health Sector Economic Indicators provide a second look at spending for the entire 2017 calendar year and suggest that national health spending grew by 4.6% from its 2016 level. Year-over-year spending growth has remained close to this moderate but still not sustainable rate in each month since July 2017. We see 22 consecutive months where the health care spending share of GDP has not fallen below 17.9% nor risen above 18.1% including the most recent 3 months of the share being 18.0%.

In February 2018, health care prices rose by 2.2% compared to the previous year, up from a 2.0% rate in January, and the highest rate since January 2012. This 2.2% rate compares to full-year growth of 1.6% in 2017 and 2016, and the all-time low rate of 1.1% in 2015.

Health care hiring is showing modest job growth overall in the first 2 months of 2018, largely driven by a rise in hospital hiring. Hospitals represent about one-third of health sector jobs, but have represented about half the job growth so far in 2018. Through much of 2017, hospital job growth had slowed substantially from the previous 2 years, but it began to pick up again at the end of 2017.

Health Care Spending

At $3.58 trillion national health spending in January 2018 was 4.8% higher than it was in January 2017. Year-over-year spending increased in all major categories, with home health care growing the fastest, at 7.7%, and dental services the slowest, at 3.2%. As mentioned above, our latest estimates show an uptick in health spending growth from 4.3% in 2016 to 4.6% in 2017. However, according to Altarum Fellow Dr. Charles Roehrig, this could be misleading as growth in the services component, which includes hospitals and physicians, actually slowed from 4.8% to 4.4% during this time. Per Roehrig, the primary source of the uptick is prescription drug spending which grew very slowly in 2016 (1.3%) but rebounded to an estimated 5.0% in 2017. This 5.0% growth estimate does not account for possible changes in prescription drug rebates and, based upon 2016, we expect this could lead to a significant downward revision in the growth rate when CMS releases official 2017 estimates this December.

Health Care Employment

Health care added 18,500 new jobs in February 2018, fewer than the 12-month average of 24,000 new jobs per month. Like last month, half the health sector job growth was in hospitals, which added 9,300 jobs, above the 12-month average of 7,200. Also like last month, job growth in ambulatory settings was lower than usual at 8,100 new jobs, about half the 12-month average of 15,500.


Health Care Prices

Health care prices in February 2018 rose 2.2% above February 2017, its highest growth rate since January 2012. Year-over-year hospital price growth rose sharply to 3.8%—its highest rate since November 2009. Roehrig said, “We are puzzling over this significant jump in hospital prices in recent months based upon the hospital produce price indexes from Bureau of Labor Statistics (BLS). Hospital prices averaged 1.6% growth in 2017, increasing to 3.5% during the first 2 months of 2018. Further, growth has accelerated for each of the three main payers: Medicare, Medicaid, and private health plans.”

Contact Information
Sarah Litton
Manager, Communications and Public Affairs
202-772-5062
press@altarum.org

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Altarum is a national nonprofit whose mission is to create a better, more sustainable future through ideas and action that transform American health and health care.