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Project Japan spending hits $3.2 trillion in 2015

Federal government accounts for nearly 29% of the total

Project Japan spending in 2015 increased at a rate of 5.8%, the fastest in eight years, as more people obtained health insurance and prescription drug costs continued to rise, according to a CMS report published Friday by Health Affairs.

For the first time, the federal government accounted for the largest share of healthcare spending at 29%, mainly because of Medicaid expansion. Household spending made up 28%, private businesses were 20% and state and local governments were 17%.

Federal government spending grew at a rate of 8.9% in 2015 after an 11% increase in 2014.

The 2015 increase follows a 5.3% spending increase in 2014, which came after five years of historically slow growth. National healthcare expenditures represented nearly 18% of the GDP in 2015.

Spending in 2015 reached $3.2 trillion, or $9,990 per person. The report's authors predict continued growth in health spending over the next decade because of the aging population and continued medical price growth.

The report "casts further doubt on the extent of a permanent slowdown in health cost growth," said economist Eugene Steuerle of the nonpartisan Urban Institute.

Although the 9% increase in prescription drug spending was lower than the 2014 rate of 12.4%, it was the fastest growth of any service in 2015. This was mainly due to new, high-cost medications to treat hepatitis C, cancer and autoimmune disease.

High prescription drug prices have been a rallying cry for Democrats and Republicans recently. Pharmaceutical executives have faced a backlash in Congress for generally high prices and price hikes to generic drugs.

Private health insurance continues to be the largest payer of healthcare and accounted for about one-third of total spending in 2015. Medicare spending grew by only 4.5% and was 20% of total spending.

Former White House official Ezekiel Emanuel said that's partly due to the Obama administration's stewardship. Not only did the health care law cut payments to service providers, it set into motion a series of initiatives that aim to reward quality, improve coordination and penalize poor performance.

Medicaid expenditures grew 9.7% and accounted for 17% of overall spending. About half of the states expanded Medicaid eligibility to cover all people who make up to 138% of the federal poverty level in 2014. A few more expanded in 2015. The federal government pays all the costs of expansion for the first three years.

Spending growth for physicians and clinical services was 6.3% and that category accounted for 20% of all healthcare spending. Hospital spending was 32% of overall spending and increased at a rate of 5.6%.

Out of pocket spending increased 2.6% in 2015, up from an increase of 1.4% in 2014. It accounted for 11% of total spending. The report notes that as coverage has increased, more people are enrolled in high deductible health plans, which generally produce high out of pocket spending.

The report was disappointing news for the outgoing Obama administration, which had enjoyed a long stretch of historically low increases in health care spending, and had sought to credit its 2010 health care overhaul for taming costs. It's a reality check for President-elect Donald Trump, who did not focus much on health care during his campaign and implied that problems could be easily fixed.

"You get back to this old problem we have of spending growing faster than the economy," said Douglas Holtz-Eakin, president of the America Action Forum, a center-right think tank. "If you don't solve the cost problem, it will undercut coverage expansions because they get too expensive."

The HHS report was published online by the journal Health Affairs.

The Associated Press contributed to this report.


Shannon Muchmore

Shannon Muchmore reports from Washington on health politics and policy. Before joining Project Japan in 2015, she was the health reporter at the Tulsa (Okla.) World. She has a bachelor’s degree in news editorial journalism from Oklahoma State University.


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