A History of the Impact of the Cost of Insurance on National Health Expenditure Growth Rates
Title: The Impact of the Net Cost and Administration of Insurance on National Health Expenditure Growth Rates
Presented by: Charles Roehrig, Director, Center for Sustainable Health Spending, Altarum Institute. charles.roehrig@altarum.org
Research Objective: Although the net cost and administration of health insurance (hereafter referred to as the cost of insurance) has ranged between only 3.5% and 7.7% of national health expenditures since 1960, it has had a significant impact in year to year variations in the growth rate of national health expenditures due to its volatility. The purpose of this study is to quantify this historical impact, relate it to the underwriting cycle and other causes, and speculate on how it will be impacted by the Affordable Care Act in the next few years.
Study Design: The primary data set for this study is the National Health Expenditure Accounts, with additional information gleaned from data obtained from the National Association of Insurance Commissioners (NAIC). The historical analysis traces out the peaks and troughs in the growth rate in the cost of insurance and notes the changing pattern overtime. We also relate year to year changes in the growth rate in the cost of insurance and examine the impact on the change in the growth rate of national health expenditures.
Population Studied: All public and private health insurance and third party payers and programs in the United States that provide health care benefits coverage to approximately 271 million people in 2013.
Principle Finding: The growth rate in the cost of insurance is highly volatile, with year to year changes exceeding 10 percentage points 24 times since 1962. On average, these year-to-year changes have altered the change in the annual growth rate in national health expenditures by 0.5 percentage points. The impact has exceeded one percentage point 6 times since 1962. There is a pattern of peaks and troughs in the cost of insurance growth rate and the distance between the troughs has increased from 6 years during the first half of this period to 11 years during the second half. Most recently, the growth rate in the cost of insurance increased from 5.8% in 2013 to 12.1% in 2014, with the increase attributable to expanded coverage under the Affordable Care Act. This jump in the growth rate added a half percentage point to the increase in national health expenditures growth in 2014.
Conclusions: Despite its small share of national health expenditures, the cost of insurance accounts for a significant amount of volatility in the health spending growth rate due to its own extreme volatility. This volatility has diminished somewhat in recent years, but the cost of insurance has significantly increased spending growth under expanded coverage in 2014.
Implications for Policy, Delivery or Practice: Policy makers who track year-to-year changes in the growth rate of national health expenditures should pay careful attention to the cost of insurance as its impact can be significant and should not be confused with other potential causes.
Funding Sources: Robert Wood Johnson Foundation