New report sheds light on how we spend on children’s health care

When it comes to children’s health coverage, we tend to talk a lot about Medicaid and the Children’s Health Insurance Program (CHIP), which cover lower-income kids. But nearly half of all children in the United States are covered by employer-sponsored plans, which is by far the largest single source of coverage.

A new report from the nonprofit Health Care Cost Institute (HCCI) gives a fresh look at how much care privately insured kids are using and how much that care costs. By analyzing private health insurance claims for an average of 10.2 million kids a year, the report finds that per capita health spending rose from $2,183 in 2010 to $2,660 in 2014. But the annual increase in per capita spending has slowed over time, from a nearly 8 percent increase in 2011 to 3.5 percent in 2014 —which averages out to an increase of 5.1 percent. By comparison, spending on adults with employer plans grew around 4 percent annually over that time.

When you break it down by age category, babies stand out as the big-ticket items, with per capita spending at $4,879 in 2014, followed by teens at $2,856. More is spent on boys ($2,785) than girls ($2,529), a reversal of gender differences in health spending among adults.

But things get more interesting when you look at the trends in both how much care is being used (utilization) and how much that care costs (price). In 2014, inpatient care, outpatient hospital visits and doctor visits either stayed flat or declined, the report finds. But the prices for each of those categories have risen — the price of outpatient visits, for example, increased 6.4 percent in 2014. Utilization has more or less flat-lined, while prices rise:

By 2014, the largest influence on the increased spending per capita for children was increases in average prices, as the use of all medical subservice categories had declined.

That has important implications for how we think about the cost of health care. As Atul Gawande helpfully explained in his New Yorker article, “Health Care’s Price Conundrum,” you cannot arrive at the promised land of lower costs by reducing unnecessary treatment alone; the price of individual services matters as well. Gawande writes:

Differences in the number of tests and treatments given from place to place are still huge for the privately insured. But the cost of health care is like the cost of groceries — the total depends on the price of every item and on how many items you get.

For example, children’s use of brand-name prescriptions dropped 12.3 percent from 2013 to 2014. And yet prices went up 21.7 percent over that same period. The trend gets more dramatic if you go back further — the average price per day of a brand prescription went from $7 in 2010 to $16 a day in 2014 — that’s up 129 percent.

Or consider the change in price for surgery. The average surgical admission cost $35,423 in 2010 and has risen steadily every year to $53,372 in 2014, according to HCCI. While surgeries are rare among children, the price hike is dramatic.

“It appears that when it comes to care, prices have recently been more of a driver of spending increases than utilization,” writes pediatrician Dr. Aaron Carroll in an AcademyHealth blog post on the HCCI report.

That fits with a growing awareness over the past year that the effort to bend the health care cost curve will need to focus more on price and not just the quantity of services. “Price has been ignored in public policy,” Dr. Robert Berenson of the Urban Institute told The New York Times earlier this year after new data revealed surprising spending patterns among private insurance plans.

The upward pressure on prices has only been heightened by the wave of mergers among hospitals and providers, which can quash competition and enable health care systems to set higher prices — without necessarily moving the quality needle.

Children punch far below their numbers when it comes to health care spending, and they’d make a poor target when it comes to reducing health care spending. But from a policy perspective, it’s worth noting that the broader trend of rising prices for those covered by employer plans applies equally to kids as well. Kids don’t get a price break.

[Photo by Juhan Sonin via Flickr.]