5 Things to Know About Health-Care Spending in the U.S.

Despite a slowdown in the growth rate of overall national health expenditures, Americans are seeing more of their paychecks go to health-care costs.

The increase is largely thanks to cost-shifting through higher deductibles in plans offered by employers, which cover the majority of workers and their families. The trend has hit middle-income households the hardest. Here are five things to know about trends in U.S. health-care spending.

The Big Picture

Growth in health-care spending has slowed since the recession and the passage of theAffordable Care Act. It was down to 5.5% annual growth in 2015, from an average of nearly 8% in the two decades preceding the recession, according to the Centers for Medicare and Medicaid Services. Some of the recent slowdown is cyclical. Many of the millions of people laid off during the recession lost access to employer-provided health insurance, and broad-based belt-tightening also forced cutbacks in health spending. But as the economy grows and earnings rise, spending on health care is expected to re-accelerate, reaching a 6% annual average growth rate between 2020 and 2025, according to CMS projections. The pickup in spending would be in large part due to America’s aging population, although other trends, such as reforms to Medicare reimbursement and “spillover effects” in the private market, will help counter some of the increase.

A Black Box

Trying to figure out exactly what’s causing the slowdown is sort of like poking around under the hood of your car while it’s still running. Many of the drivers of health costs arestill in a state of flux, such as the structure of state insurance marketplaces or the health-care needs of the newly insured. “If you’re spending more, is it because people are sicker, or because we invented some great new thing?” asks Helen Levy, an economist and public policy professor at the University of Michigan, citing expensive new medical devices or innovative drugs as two potential cost drivers. “It’s always a little bit of a black box.”

Government Is Paying More

One thing is clear: Growth in national health-care spending has a habit of outpacing overall economic growth. That’s brought it from 13.3% of GDP in 2000 to 18.2% in June 2016, according to health research group Altarum Institute. (The CMS projects it will reach 20.1% in 2025.) But the mix of who pays for what has changed. Public-health spending has grown as more baby boomers age into Medicare and Medicaid coverage expands, and that share is expected to rise even further. Recently released projectionsfrom the CMS estimate the share of total national health spending paid for by federal, state and local governments will reach 47% by 2025, from 45% in 2015 and 40% in 2007.

…And So Are Workers

Private insurance plans have gotten slightly less generous, according to an analysis of claims by millions of policyholders undertaken by the nonprofit health-care research group the Kaiser Family Foundation. That’s bad news for the majority of people—about 55% of Americans under 65 in 2014—with health-care coverage through an employer. Most of the cost-shifting is courtesy of rising deductibles, which for single workers grew by 67% between 2010 and 2015, roughly seven times as much as wages grew over the same period, according to the Kaiser Family Foundation’s 2015 Employer Health Benefits Survey. The same survey found premium growth has slowed to an average of 5% per year since 2005, down from 11% average annual growth between 1999 and 2005. This trend is set to continue: The CMS expects more people to gain coverage under high-deductible plans in coming years.

Rising health-care spending has hit middle-class families hard, since they earn too much to qualify for ACA subsidies or Medicaid, but not enough to easily absorb rising out-of-pocket costs. A Brookings Institution analysis of consumer expenditures found that middle-income households saw their share of household spending on health care rise by more than three percentage points between 1984 and 2014. Low-income households saw just a two-percentage point rise in the same period, possibly because more of them were eligible for Medicaid or simply abstained from some health-related expenses altogether.

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