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Obamacare and drug prices push health spending to $3 trillion

Health spending reached $3 trillion last year, as millions of people gained insurance coverage under the Affordable Care Act and prescription drug prices rose.

After years of sluggish growth in the aftermath of the recession, annual health spending in the U.S. jumped 5.3 percent to $9,523 per person, according to an analysis by the Centers for Medicare and Medicaid Services published in the journal Health Affairs on Wednesday.

Expansion of insurance coverage was a main driver: In 2014, 2.2 million people gained private health insurance and 7.7 million joined Medicaid, most of whom were newly eligible for the coverage due to coverage expansion under health reform. Not all of these people previously lacked insurance; 8.7 million people gained insurance overall, according to the report.

Another major driver of the increases was prescription drug spending, which grew more than 12 percent to $297.7 billion -- its largest annual increase in more than a decade. Anne Martin, an economist in the office of the actuary at CMS attributed the growth in part to a new generation of pricey hepatitis C drugs. Price hikes on brand name drugs also contributed, along with fewer savings on drugs whose patents expired.

Read more: How an $84,000 drug got its price: ‘Let’s hold our position … whatever the headlines’

Hepatitis C drugs accounted for $11.3 billion in new spending -- accounting for roughly a third of the drug spending increase.

"You saw a huge influx of spending on those new medicines," Martin said. A projection of future health costs released this summer predicted that surge of spending would decrease in future years as discounts and rebates were applied to the drugs. Overall, prescription drug spending was 10 percent of total health spending.

Medicaid coverage grew markedly, but the enrollment grew faster than spending. Micah Hartman, a statistician with CMS said that's because the newly insured tended to be healthier and younger, causing the Medicaid spending per enrolled person to drop by 2 percent.

Richard Frank, assistant secretary for planning and evaluation at the Department of Health and Human Services argued that the faster growth in spending was a temporary surge that would fade over time.

“Today’s numbers on national health spending show that as millions more Americans gained coverage in 2014, health care spending growth stayed well below the trend seen prior to the Affordable Care Act,” Frank said in a statement. He noted that while the overall growth in spending had escalated, the increases in spending per-enrollee for both private insurance and Medicare were less than half of the rate of increase in the decade prior to the Affordable Care Act.

Overall, government and private health insurance were the source of nearly three quarters of the health spending. Out-of-pocket spending by consumers on co-payments, deductibles and coinsurance made up 11 percent of health spending.

Despite growing worries about costs being shifted on to consumers due to a growth in deductibles, out-of-pocket spending was one of the few areas in which spending growth was slower than in 2013.  Economists attributed that slight slowdown in growth -- from 2.1 percent in 2013 to 1.3 percent in 2014 -- to more people gaining health insurance coverage.