Private Payer Spending Hits $1.2T in 2019 As Spending Growth Slows

Overall healthcare spending in the US rose 4.6 percent in 2019 to hit $3.8 trillion, with private payers contributing a little more than three out of every ten healthcare dollars (31 percent), a recent analysis from the Office of the Actuary at CMS discovered.

“Health care spending in 2019 increased at about the same rate as it had in 2018 and was similar to the average annual growth since 2016,” explained Anne Martin, an economist in the CMS Office of the Actuary and first author of the Health Affairs article.

The personal healthcare spending rate increased by 5.2 percent, but the net cost of health insurance dropped, offsetting these expenditures.

Private payers’ healthcare spending increased by 3.7 percent. In comparison, this segment of the industry saw a 5.6 percent growth rate in 2018. The slower growth rate was a result of the health insurance tax suspension.

Enrollment grew by 0.5 percent in 2019. Spending per enrollee rose 3.2 percent. Again, in this area spending in 2018 outstripped spending in 2019, as in 2018 private payer spending per enrollee grew by 6.4 percent.

Although private payers had the highest spending out of the three sectors that CMS analyzed, Medicare healthcare spending growth far outpaced private payer and Medicaid spending growth.

Medicare spending rose 6.7 percent in 2019. This sector contributed 21 percent toward overall US healthcare spending. Medicare’s 2019 growth rate is similar to what the market experienced in 2018 when Medicare spending increased by 6.3 percent.

Medicare enrollment was also steady between 2018 and 2019, rising 2.6 percent both years.

While these levels remained fairly constant, per enrollee Medicare spending in 2019 slightly exceeded 2018 growth levels. In 2019, spending per Medicare enrollee grew 4.0 percent, whereas in 2018 this metric grew by 3.6 percent.

The analysis also broke down fee-for-service Medicare spending in comparison to Medicare Advantage spending—or “Medicare private health plan spending.”

Researchers identified a significant downward trend in original Medicare’s share of healthcare spending compared to 2016. In 2019, fee-for-service Medicare contributed 61 percent of overall Medicare spending, while in 2016 fee-for-service Medicare accounted for 67 percent. The decline in original Medicare enrollment precipitated this trend.

Original Medicare also had a slower healthcare spending growth rate than in the previous year, rising 3.0 percent in 2018 and 2.2 percent in 2019.

In contrast, Medicare private health plan spending grew 14.5 percent and contributed 39 percent of overall Medicare spending. In 2018, Medicare private health plans saw 12.6 percent growth in healthcare spending.

Thus, although fee-for-service Medicare still contributed more overall to national healthcare spending in 2019, Medicare private health plan spending saw a much higher growth rate.

Medicaid spending in 2019 amounted to $613.5 billion. Its share of the total national health spending was 16 percent with a 2.9 percent growth rate in healthcare spending, comparable to the previous year’s 3.1 percent growth rate.

“The relatively steady growth in 2019 was influenced by faster spending growth for most goods and services and a decline in the net cost of insurance, which was in part due to the health insurance tax moratorium in 2019,” the Health Affairs article explained.

Medicaid enrollment fell by 1.5 percent in 2019, while in 2018 enrollment dropped by 0.9 percent. Medicaid spending per enrollee grew 4.5 percent, after a 4.0 percent growth rate in 2018.

“This relative stability in health care spending growth over the last four years preceded the COVID-19 pandemic in 2020,” Martin noted. “The full impact of the pandemic on the health care sector is still not known, but it will certainly have profound consequences on the provision and consumption of health care in 2020 and perhaps beyond.”

In mid-June 2020, experts tentatively lowered the estimated COVID-19 costs for payers. They settled on projecting $546.6 billion in payers’ coronavirus-related healthcare spending for benefit years 2020 and 2021.

Those costs are mostly tied to the downstream impacts of deferred care. The researchers decreased the projection due to lower than expected hospitalization rates, higher costs of hospital admission, and other deferred care factors.

But coronavirus spending is only one factor of healthcare spending for 2020 and 2021. Unrelated to the pandemic, chronic diseases have continued to contribute to high healthcare spending. Telehealth may play a role in reining in unpredictable healthcare costs.