Health Care Price Growth Plummets To Lowest Rate In Almost Two Years

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Fueled by health policy uncertainty and structural health sector changes, health care price growth in August rose by only 1.2% compared to a year earlier. This is the lowest health price growth rate recorded in almost 2 years, and just slightly above the all-time low, according to Altarum’s latest Health Sector Economic Indicators Briefs. Contributing to overall slow price growth is a historically low Medical Consumer Price Index growth rate, a possible signal of relief for health care consumers with substantial out-of-pocket expenditures.

Despite an upward revision to recent estimates, health spending growth in August 2017 was only a modest 4.3% higher than a year earlier. Per Charles Roehrig, founding director of Altarum’s Center for Sustainable Health Spending, this moderation in spending growth is in response to a leveling-off in insurance coverage.

Health care job growth also remained modest, with 22,500 new jobs added in September 2017, slightly less than the 2017 average of 25,000. “Slower growth in health care utilization is reflected in slower growth in health jobs, particularly in the hospital sector,” said Roehrig. “This relatively good news should be tempered by a serious look at whether even this moderate growth is sustainable in the longer term.”

Health Care Spending

In August, the health share of gross domestic project (GDP) fell to 18.0%, but spending at an annual rate was 4.3% higher than August 2016, exceeding $3.5 trillion. Spending growth in August 2017 increased in all major categories, led by home health care at 6.5%. Hospital spending continues to grow slowly, at a 2.3% rate.

Health Care Employment

Hospitals added 4,500 jobs and ambulatory care settings added an above-average 24,700 jobs in August, but these gains were offset by the loss of 6,700 jobs in nursing and residential care. Slow hospital job growth in 2017 is a primary force behind the health sector growing at about three-quarters the pace of 2015 and 2016.

Health Care Prices

The 12-month moving average of the Health Care Price Index (HCPI) fell to 1.8% growth after being at 1.9% for 6 straight months, dousing any expectations of a return to a 2.0% growth rate range in the near term. Year-over-year hospital price growth fell to from 1.5% to 1.3%, and physician and clinical services price growth fell one-tenth to 0.5%. Annual drug price growth fell to a 2.7% rate, its lowest reading since growing by 2.4% in December 2015.

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