Health Care Spending Increases, Federal Share Rises

The federal government spends more on health care than any other entity or group, in part due to Medicaid expansion under the Affordable Care Act.

Medicaid expansion under the Affordable Care Act (ACA) contributed to the federal government becoming the largest purchaser of health insurance and other health care services in 2015, while health care spending rose more than twice as fast as overall economic growth, according to a study released by the Centers for Medicare and Medicaid Services (CMS)

The total amount spent on health care in the United States in 2015 increased by 5.8 percent to reach $3.2 trillion, or $9,990 per person, the December 2016 study states. The federal government’s share of this spending increased by 8.9 percent, to $919 billion, outpacing the growth in health care spending by households, private businesses, and state and local governments, according to the news website Roll Call. The country’s “real” (inflation-adjusted) gross domestic product increased 2.6 percent from 2014 to 2015, according to the Bureau of Economic Analysis. The inflation rate in 2015 was 0.7 percent.

Under ACA, the federal government now pays 90–100 percent of state Medicaid expansion costs for newly eligible enrollees. Almost two-thirds of individuals who gained health insurance under ACA in 2014 did so by enrolling in Medicaid, according to a 2016 New England Journal of Medicine study.

The December 2016 CMS report indicates 32 percent of all health care expenditures in the country were on hospital care, 20 percent on physician and clinical services, 10 percent on prescription drugs, and the remainder on other nursing homes, hospice, medical equipment, and nonemergency care services.

Boom and Bust

Sally Pipes, president and CEO of the Pacific Research Institute, says throwing tax dollars at the health insurance industry under ACA has increased the cost of health care.

“While it is true that the federal government is the largest health insurance purchaser in the nation, the costs are high and patients do not receive the best care,” Pipes said. “One of the two main pillars of Obamacare, according to President Obama, was to bring the cost of health care down.”

The increase in health care expenditures breaks a promise Obama made when selling ACA to the public, Pipes says.

“This is contrary to what the president promised the American people,” Pipes said. “Even worse, the increase in health care spending isn’t translating into better care for Americans.”

Value Propositions

Josh Archambault, a senior fellow at the Foundation for Government Accountability, says the increase in national health care expenditures proves Obamacare is shrinking people’s disposable income.

“Are we getting a level of value for the dollars that we are spending?” Archambault said. “Every single additional health care dollar that is spent is, in reality, one less dollar spent in a family’s budget or other public spending priorities, like education or infrastructure.”

One way Trump and Congress could reduce Medicaid spending is cutting entitlements for able-bodied adults, Archambault says.

“Obamacare has driven a huge spike in spending for able-bodied adults that have traditionally not been covered by Medicaid,” Archambault said. “I expect under the Trump administration and the Republican Congress that there will be a robust discussion about how we should be prioritizing coverage for able-bodied adults, most of whom can work, unlike the truly needy on the program.”

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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