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Healthcare spending rises to $3.6 trillion in the U.S., driven partly by health insurance tax

After a slower growth rate in 2017, 2018 saw growth rates about equal to those of 2016, driven in part by the reinstatement of a fee on insurers.

Jeff Lagasse, Associate Editor

Healthcare spending in the U.S. hit a high-water mark of $3.6 trillion in 2018, rising at a rate of 4.6% -- the same rate of increase found in 2016, and higher than the 4.2% rate in 2017.

The Centers for Medicare and Medicaid Services' Office of the Actuary, publishing in Health Affairs, found that the increase in expenditures was due largely to a tax on private and federal insurance providers. The health insurance tax, an Affordable Care Act-mandated fee on insurers based on their premiums, was not implemented in 2017 but reinstated in 2018. CMS claims this is the major cause behind the surge in the net cost of insurance.

The HIT was delayed for 2019, but is scheduled to be implemented again in 2020.

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In fact, the government agency estimated health insurers' costs at about $1.2 trillion in 2018, accounting for about 34% of total U.S. healthcare spending. Private insurance spending ticked up 5.8%, compared to 2017's 4.9% growth rate.


Faster growth in Medicare and private insurance spending helped to fuel the increase in the spending growth rate. In all, $1.2 trillion was spent on private health insurance in 2018, accounting for one-third of all health spending despite slightly lower enrollment numbers than the year before. Per enrollee, private insurance spending rose from $5,813 to $6,199.

Despite the increases, healthcare actually accounted for a slightly lower percentage of national GDP in 2018 compared to the year prior, dipping from 17.9% to 17.7%. Economic growth outpaced the increase in national healthcare spending in 2018, though the cost of health insurance still increased by an estimated 13.2%.

Medicare and Medicaid spending also increased in 2018. Medicare spending was 6.4% higher than the previous year, totaling just over $750 billion -- or 21% of total healthcare spending -- while Medicaid spending climbed 3% to reach $597.4 billion, about 16% of healthcare spending.

Spending on retail prescription drugs, meanwhile, reached $335 billion, a 2.5% increase, which doesn't include physician-administered drugs. Spending on hospital care, representing about 33% of total healthcare spending, increased at the same rate as in 2017 despite higher prices because utilization of services was lower.


With increasing amounts of money being spent on healthcare in the U.S., figures published in JAMA in October showed that an exorbitant amount -- about 25% of all healthcare spending -- is waste.

The estimated annual cost of waste was $265.6 billion for administrative complexity alone, including billing and coding waste, and physician time spent reporting on quality measures. $230.7 billion to $240.5 billion of the waste was for pricing failure, with price increases far from those expected in a well-functioning market.

$102.4 billion to $165.7 billion was for failure of care delivery, meaning poor execution or lack of widespread adoption of best care processes. $75.7 billion to $101.2 billion was comprised of overtreatment or low-value care; $58.5 billion to $83.9 billion for fraud and abuse; and $27.2 billion to $78.2 billion for failure of care coordination (unnecessary admissions or avoidable complications and readmissions).

Twitter: @JELagasse

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