Center for SuStainable HealtH Spending

HIGHLIGHTSs For the first 11 months of 2013, national health expenditures

(NHE) grew at an annual rate of 4.0%, compared with the 3.7% increase in 2012 that is reflected in data just released by the Centers for Medicare & Medicaid Services (CMS).

s NHE in November 2013 grew 4.5% over November 2012.s The November NHE growth rate was 0.6% less than gross

domestic product (GDP) growth over the same period. s The health spending share of GDP was 17.2% in November.

Prior to “benchmark” revisions to the underlying government data that were released on July 31, we had been reporting this share at roughly 18%.

s The 17.2% health spending share is up from 16.0% at the start of the recession in December 2007. This increase is partly attributable to slow GDP growth rather than high health spending growth, as the November 2013 health spending share of potential GDP (PGDP) was 16.6%.1

s Spending in November, year over year, increased in all major categories except dental services, which declined by 1.9%, and nursing home care, which declined by 0.3%. Prescription drugs grew the fastest, at 7.8%.

HEALTH SPENDINGIn November 2013, health spending increased to a seasonally ad-justed annual rate (SAAR) of $2.96 trillion, marginally higher than its value of $2.95 trillion in October. November’s health spending accounted for 17.2% of GDP – down from its October value of 17.3%. As a share of PGDP, November’s spending was at 16.6% – equal to the October value. Year over year, health spending in November grew by 4.5% – slightly lower than its October value of 4.7% (Exhibit 1). (Exhibits 7 and 8 show long-term comparisons.)

Exhibit 1. Year-Over-Year Growth Rates in NHE

2013 health spending growth through November is near low rate reported by CMS for 2012, but shows signs of increasing

Na�onal Health Expenditures (NHE) and Gross Domes�c Product (GDP)*

Source: Altarum monthly NHE estimates (see Methods on page 4); monthly GDP is fromMacroeconomic Advisers and Altarum estimates; potential GDP (PGDP), defined as what GDPwould be at full employment, is from the quarterly Congressional Budget Office estimates convertedto monthly by Altarum. *Note: Spending in trillions of dollars, seasonally adjusted annual rate

GDPNHENHE Share of GDPNHE Share of PGDPGrowth from Prior 12 Months NHE GDP NHE minus GDP NHE minus PGDP

Nov. 2011 15.79

2.74 17.3%16.4%

3.1%4.0%

-0.9%-0.5%

Nov. 2012 16.37

2.83 17.3%16.4%

3.4%3.7%

-0.3%-0.1%

Oct. 2013 17.09

2.95 17.3%16.6%

4.7%4.3%0.3%1.6%

Nov. 2013 17.21

2.96 17.2%16.6%

4.5%5.1%

-0.6%1.2%

Source: Altarum monthly NHE estimatesCompares monthly NHE to the same month from the previous year

Since the start of the recession in December 2007, real health spending (using the GDP deflator) through November has increased by 14.7% (an annual rate of 2.3%). During this same period, real GDP, excluding health spending, fell by more than 6% in mid-2009 and is now 5.2% above its December 2007 level. Including health care, real GDP in October is 6.7% above its pre-recession level (Exhibit 2).

Exhibit 2. NHE and GDP: Cumulative Percentage Change (Constant Dollars) Since December 2007

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ALTARUM INSTITUTE Spending Brief #14-01: November 2013 Data 1

January 17, 2014

Source: Altarum monthly NHE estimates; monthly GDP is from Macroeconomic Advisers and Altarum estimates

Note: Shading indicates recession period

SPENDING BRIEF

© 2014 Altarum Institute. All rights reserved.

Health Sector Economic IndicatorsSM

Insights from Monthly National Health Expenditures Estimates through November 2013

-10%

-5%

0%

5%

10%

15%

20%

Dec2007

Apr2008

Aug2008

Dec2008

Apr2009

Aug2009

Dec2009

Apr2010

Aug2010

Dec2010

Apr2011

Aug2011

Dec2011

Apr2012

Aug2012

Dec2012

Apr2013

Aug2013

NHE NHE Es�mate GDP GDP Less NHE0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

Nov2011

Feb2012

May2012

Aug2012

Nov2012

Feb2013

May2013

Aug2013

Nov2013

HEALTH SPENDING BY CATEGORYIn November 2013:s Hospital spending was $939 billion (SAAR) and represented

32% of total health spending (Exhibits 3 and 5).s Physician and clinical services spending was $590 billion,

representing 20% of total health spending.s Prescription drug spending was $288 billion, 10% of total

health spending.s Nursing home and home health spending combined were

$237 billion, 8% of total health spending.s Spending on personal health care goods and services accounted

for 84% of total health spending (other major components include public health, research, construction, and net cost of private insurance).

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ALTARUM INSTITUTE Spending Brief #14-01: November 2013 Data 2

Hospital care32%

Physician & clinical services

20%

Dental services4%

Prescrip�on drugs10%

Nursing home5%

Home health care3%

Remaining personal health

care11%

Other health spending

16%

Source: Altarum monthly NHE estimatesNotes: See Exhibit 5 for complete list of NHE categories. Percentages do not add to 100% due to rounding.

Growth over the past 12 months: Prescription drugs grew most rapidly among the major categories (7.8%). Spending for dental services continued its decline in November (by 1.9%). Nursing home care declined by 0.3%. For the 12-month period ending November 2012, home health care showed the highest growth among the major categories, at 7.5%, while prescription drug spending declined by 0.5% (Exhibits 4 and 6).

Exhibit 4. NHE Year-Over-Year Growth for Selected Categories

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

Hospitalcare

Physician/clinical services

Prescrip�on drugs

Nursinghome

Homehealth care

Dental services

November 2013 annual growth November 2012 annual growth

DISCUSSION

This month’s spending estimates incorporate revisions based largely on two government datasets: (1) the Bureau of Economic Analysis “Gross Domestic Product: Third Quarter 2013 (Third Estimate)” and its underlying monthly spending data through November, which was released on December 23, and (2) the government’s official estimate of national health expenditures in 2012, prepared by the CMS Office of the Actuary and released on January 6.2 The combined impacts of these new and revised data include an upward revision to annualized spending growth for January through October 2013 from 3.8% to 4.0%, caused primarily by an increase in the growth rate for hospital spending from 4.3% to 4.7%. Spending growth for 2012 was revised downward from 3.9% to 3.7%, largely due to adjustments in non-personal health care expenditures such as construction and net cost of private insurance. A 2011 downward revision occurred in all major spending categories, resulting in an overall adjustment in spending growth from 3.9% to 3.6%. Hospital spending, whose growth was revised from 4.3% to 3.5%, contributed the most to the overall reduction for 2011.

Our revised estimates incorporate the CMS results that indicate spending in 2012 grew at an annual rate below 4.0% for the fourth consecutive year. The revised growth rate for 2011 of 3.6% is a record low. The subsequent annualized rate of 4.0% from January through November 2013 represents spending growth that is close to these low values. However, the continuing economic recovery coupled with the increasing insurance coverage associated with the Affordable Care Act may make this current path of moderate spending growth difficult to sustain. Continued timely tracking of these expenditures will enable us to observe the effects of these upward pressures on spending growth as they occur. In fact, the annual rate of spending growth has been gradually increasing since April of 2013 and was at 4.5% in November.

Source: Altarum monthly NHE estimates

1 For further discussion of PGDP, see our blog at http://altarum.org/health-policy-blog/the-case-for-tracking-health-spending-as-a-share-of-potential-gdp.2 The CMS official estimate is summarized in Martin A B et al. National health spending in 2012: Rate of health spending growth remained low for the fourth consecutive year. Health Affairs 33, No. 1 (2014): 67-77.

Altarum Institute is a 501(c)(3) nonprofit health care research and consulting organization. Altarum integrates independent research and client-centered consulting to deliver comprehensive, system-based solutions that improve health and health care.

The Center for Sustainable Health Spending (CSHS) was launched in 2011 to lead Altarum Institute’s research on investigating the cost growth trends and key drivers of U.S. health spending and to formulate policy strategies to help bend the cost growth curve.

The Health Sector Economic IndicatorsSM reports are a monthly publication of Altarum’s CSHS and provide an analysis of health spending, employment, and prices. For more information, contact Charles Roehrig, PhD, at 734-302-4600 or charles.roehrig@altarum.org. George Miller, PhD (principal au-thor), Paul Hughes-Cromwick, Ani Turner, and Matt Daly, PhD, contributed to this brief. Media Contact: Ken Schwartz, 571-733-5709, ken.schwartz@altarum.org. For more information, please visit www.altarum.org/cshs.

Exhibit 3. Health Spending by Category, November 2013

Center for SuStainable HealtH Spending

Follow us on Twitter: @ALTARUM_CSHS

Exhibit 6. NHE Year-Over-Year Growth Rates by Detailed Category

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ALTARUM INSTITUTE Spending Brief #14-01: November 2013 Data 3

Source: Altarum monthly NHE estimates; monthly GDP is from Macroeconomic Advisers and Altarum estimatesNote: Spending in billions of dollars, seasonally adjusted annual rate (SAAR)

Source: Computed from Exhibit 5Note: Compares monthly NHE to the same month from the previous year

DETAILED HEALTH SPENDING

Exhibit 5. Monthly NHE Estimates by Detailed Category

GDP

NHE

Personal health care

Hospital care

Physician and clinical services

Other prof. services

Dental services

Other health, residential, and personal care

Home health care

Nursing home care

Prescription drugs

Durable medical equipment

Nondurable medical products

Program administration and net cost of private health insurance

Government public health activities

Research

Structures and equipment

NHE Share of GDP

NHE Share of PGDP

$15,187.0

$2,654.1

$2,239.6

$834.1

$525.5

$71.3

$106.8

$129.5

$72.5

$147.6

$261.5

$38.2

$52.4

$186.6

$74.6

$50.0

$103.2

17.5%

16.5%

$15,791.7

$2,736.7

$2,311.4

$861.9

$548.1

$74.2

$108.4

$134.3

$74.6

$148.2

$268.2

$39.6

$53.9

$192.5

$73.3

$49.2

$110.3

17.3%

16.4%

$16,374.7

$2,830.7

$2,392.4

$894.5

$572.2

$77.2

$111.1

$140.5

$80.2

$153.4

$266.9

$41.9

$54.5

$202.2

$75.8

$47.4

$113.0

17.3%

16.4%

$17,209.9

$2,959.5

$2,493.0

$939.0

$589.5

$81.4

$109.0

$147.6

$84.5

$152.9

$287.8

$44.4

$56.9

$222.4

$78.1

$47.3

$118.8

17.2%

16.6%

November2010Levels (in Billions)

November2011

November2012

November2013

GDP

NHE

Personal health care

Hospital care

Physician and clinical services

Other prof. services

Dental services

Other health, residential, and personal care

Home health care

Nursing home care

Prescription drugs

Durable medical equipment

Nondurable medical products

Program administration and net cost of private health insurance

Government public health activities

Research

Structures and equipment

NHE Minus GDP

NHE Minus PGDP

4.0%

3.1%

3.2%

3.3%

4.3%

4.0%

1.5%

3.7%

2.8%

0.4%

2.5%

3.7%

2.9%

3.1%

-1.8%

-1.5%

6.9%

-0.9%

-0.5%

3.7%

3.4%

3.5%

3.8%

4.4%

4.1%

2.5%

4.6%

7.5%

3.5%

-0.5%

5.8%

1.0%

5.1%

3.3%

-3.7%

2.5%

-0.3%

-0.1%

5.1%

4.5%

4.2%

5.0%

3.0%

5.4%

-1.9%

5.1%

5.4%

-0.3%

7.8%

5.8%

4.4%

10.0%

3.0%

-0.3%

5.1%

-0.6%

1.2%

November2011Levels

November2012

November2013

Center for SuStainable HealtH Spending

TIME SERIES TRACKER

Exhibit 7. Year-Over-Year Percentage Change in Health Spending and GDP

Exhibit 8. Monthly NHE as a Percentage of Monthly GDP

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ALTARUM INSTITUTE Spending Brief #14-01: November 2013 Data 4

Source: Altarum monthly NHE estimates; monthly GDP is from Macroeconomic Advisers and Altarum estimatesNote: Lightly shaded bars denote recession periods

Source: Altarum monthly NHE estimates. Monthly GDP is from Macroeconomic Advisers. Potential GDP is from the U.S. Congressional Budget Office and has been converted to monthly estimates.Note: Lightly shaded bars denote recession periods.

Methods. Altarum’s estimates are based on (1) Bureau of Economic Analysis (BEA) monthly health spending (http://www.bea.gov/iTable/iTable.cfm?ReqID=12&step=1) and (2) Centers for Medicare & Medicaid Services annual NHE estimates (1990–2012) and projections (2013); https://www.cms.gov/NationalHealthExpendData/). BEA spending categories are matched to NHE account (NHEA) components using information presented in: Hartman, M. B., Kornfeld, R. J., & Catlin, A. C. (2010, September). A reconciliation of health care expenditures in the national health expenditures accounts and in gross domestic product. Survey of Current Business. For all NHEA personal health care categories except “other health, residential, and personal care,” monthly estimates are based on BEA spending adjusted to NHEA using annual ratios. For the remaining categories, NHE estimates and projections are allocated across months using a simple trend. Annual ratio adjustments through 2012 are based on NHEA actuals and ensure that monthly estimates sum exactly to NHEA annual amounts. The 2012 ratios are also used to adjust BEA spending for months in 2013.

10%

11%

12%

13%

14%

15%

16%

17%

18%

1990 1995 2000 2005 2010

Health Share of GDP Health Share of Poten�al GDP

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

1990 1995 2000 2005 2010

NHE Change GDP Change Poten�al GDP Change

Center for SuStainable HealtH Spending