Revised Spending Data and Gross Domestic Product Spurt Brings Health Share Down to 17.9%

June 15, 2018

Ann Arbor, MI — While earlier data suggested a recent acceleration, with revised data, we estimate spending growth of 4.7% for the first four months of 2018, barely above the 4.6% rate seen for all of 2017. This restrained spending combined with a spurt in gross domestic product growth led to a health spending share falling to 17.9% (the high was 18.1% in January 2018).

Health sector employment continues to grow at a steady pace, averaging 26,000 new jobs per month in 2018 and over the past 12 months. About two-thirds of this growth has been in ambulatory care settings and about one-third in hospitals. Of note, year-over-year health job growth has been stable near 2.0% for about a year. Across the two recent periods of full employment, year-over-year health care job growth grew at a similar rate, averaging 2.2%. With strong economy-wide jobs growth, the health share of total U.S. jobs was steady at 10.76%, a record high.

“Health spending growth has shown a small upward trend from 4.3% in 2016 to 4.6% in 2017 and 4.7% during the first four months of 2018,” says Altarum Fellow Dr. Charles Roehrig. “However, this trend is more than explained by a 0.5 percentage point increase in economy-wide price inflation over this period. When we examine the growth in utilization of health care services, we find a downward trend, from 3.5% in 2016 to 3.0% in 2017 and 2.3% during the first quarter of 2018. The gap between health spending growth and GDP growth has also been trending downward during this time. Thus, the slight upward trend in health spending growth obscures a downward trend in some key indicators. It appears that some of the gains in insurance coverage have been reversed in 2018 and this will add additional downward pressure on spending growth as the year progresses.”

In May 2018, the Health Care Price Index (HCPI) rose by 2.1% compared to the previous year, down from 2.3% in April which was the highest rate since January 2012. For the third month, the HCPI 12-month moving average has shown 1.7% growth. Since February, the big news has been extremely high hospital price growth, especially for Medicare patients (the April annual rate of 4.6% growth was the highest since November 2009). However, in May, we see a sharp drop in the rates for Medicare (from 4.6% to 4.2%) and for private pay (from 3.8% to 2.8%). Accordingly, total hospital price growth fell from 3.6% in April to 2.8% in May. We believe that hospital price growth will continue to dissipate and will serve to confound what would otherwise be a rising trend for health care price growth.

Health Care Spending

At $3.61 trillion (seasonally adjusted annual rate), national health spending in April 2018 was 4.6% higher than it was in April 2017. Spending in April 2018, year over year, increased in all major categories. Spending on home health care grew the fastest, at 6.0%. Growth in spending on nursing home care was the slowest, at 3.6%.

Health Care Employment

Health care added 28,900 new jobs in May 2018, just above the 12-month average of 26,500 new jobs per month. Hospitals added 6,200 jobs in May, less than the 12-month average of 8,300. Ambulatory settings such as physician offices and home health added 17,900 new jobs, consistent with the 12-month average of 17,400.

Health Care Prices

Health care prices in May 2018 rose 2.1% above May 2017. The April rate of 2.3% had been the highest since January 2012. Year-over-year hospital price growth fell sharply to 2.8% from 3.6% in April. Physician and clinical services price growth was steady at a low 0.5% in May. Annual drug price growth rose to 3.7% in May from 2.7% in April.

View Reports: June 2018 Health Sector Economic Indicators Briefs

Altarum is a nonprofit organization that works with federal and state agencies and foundations to design and implement solutions to improve the health of individuals with fewer financial resources and populations disenfranchised by the health care system. We achieve measurable results by combining our expertise in public health and health care delivery with technology, workforce training and continuing education, applied research, and technical assistance. Our innovative solutions lead to better health for beneficiaries and better value for payers.