Healthcare Spending Hit by Slow Economy

CMS Report Depicts Government’s Increasing Role

Spending on healthcare in the United States totaled $2.5 trillion in 2009, a 5.7% increase, and accounted for 17.3% of the nation’s gross domestic product (GDP). Although job losses contributed to a reduction in private insurance enrollment, insurers saw better growth in private health insurance premiums than during 2008. Growth in public-sector healthcare spending outpaced increases in private outlays, and the government’s share of the national healthcare bill is projected to exceed 50% by 2012, according to projections released by the Centers for Medicare & Medicaid Services (CMS) and published in the journal Health Affairs [2010 Feb 4; Epub ahead of print].

Healthcare spending as a share of GDP increased by 1.1% in 2009, the largest 1-year increase in GDP share since the federal government began keeping track in 1960. The report emphasized the influence of the overall economy, stating that the large increase in healthcare spending as a percentage of GDP “reflects the severity of the recession that began in 2007.” The lead author is Christopher J. Truffer, an actuary in the CMS Office of the Actuary, and he was joined by a group of economists and actuaries from CMS. Data were provided by CMS, Office of the Actuary, National Health Statistics Group; and the US Department of Commerce, Bureau of Economic Analysis and US Census Bureau.

Compared with the 5.7% increase in 2009, total healthcare spending increased by 4.4% in 2008 to $2.34 trillion. Health spending as a share of GDP was 16.2% in 2008 and 15.9% in 2007. CMS predicted that national health expenditures would increase to $2.57 trillion in 2010, $3.23 trillion in 2014, and $4.48 trillion in 2019.

Public healthcare payers spent more than $1.2 trillion in 2009, an 8.7% growth rate, after an increase of 6.5% in 2008. In comparison, private payers spent $1.3 trillion, a 3.0% increase. Private health spending is expected to grow by 2.8% in 2010, 5.0% in 2014, and 6.3% in 2019, for a projected growth rate of 5.2% from 2009 to 2019.

Recession-related unemployment was blamed for a 6.5% growth in Medicaid enrollment during 2009, which was accompanied by a 9.9% increase in Medicaid spending for a total of $378.3 billion. Growth in Medicaid enrollment was cited as a major contributor to the continuing expansion of the role of government in paying for healthcare in the United States. Medicare spending also increased by 8.1% to $507.1 billion in 2009, compared with 8.6% growth in 2008.

The growth rate for public healthcare spending is projected at 6.8% for 2011 and 2012, resulting in the government splitting the bill about evenly with private payers in 2012. Public payers were responsible for about 48.7% of national healthcare expenditures in 2009 compared with 47.3% in 2008 and 46.4% in 2007. Public spending is expected to grow by 5.2% in 2010, 6.7% in 2014, and 7.2% in 2019, for a projected growth rate of 7.0% from 2009 to 2019. The report projects government picking up 49.3% of the national healthcare tab in 2010, 50.9% in 2014, and 51.9% in 2019.

Growth in out-of-pocket spending slowed from 2.8% in 2008 to 2.1% in 2009 and reached $283.5 billion, the report noted. The recession has slowed growth in the demand for services with significant out-of-pocket costs, driving the projected slowdown in out-of-pocket spending growth. Between 2009 and 2019, out-of-pocket spending growth is projected to average 4.8%.

The authors estimated that private insurance enrollment declined by 1.2% in 2009. Despite losing enrollees, growth in spending on private insurance premiums was 3.3% in 2009, for a total of $808.7 billion, compared with 3.1% growth in 2008 for a total of $783.2 billion. CMS said the steady rate of growth in premiums is the net result of a reduction in the number of people with private health insurance coverage due to job losses associated with the recession, offset by an increase in the take-up rate of Consolidated Omnibus Budget Reconciliation Act (COBRA) coverage due to additional COBRA subsidies provided by the American Reinvestment and Recovery Act of 2009.

Following publication of CMS’ spending projections, a statement issued by Karen Ignagni, president and CEO of America’s Health Insurance Plans (AHIP), defended the role of health insurers and the service they provide. “The new CMS data confirm that rising healthcare costs are driven by increases in underlying medical costs, not health plan administrative costs. In fact, the proportion of health insurance premiums that go toward administrative costs is declining as overall healthcare costs continue to soar,” Ms. Ignagni said.
Growth Drivers

AHIP and CMS cited underlying increases in the cost of healthcare services as a principal factor contributing to spending growth. Aggregate personal healthcare spending, defined as a subset of spending that includes only the purchase of healthcare goods and services, was spurred by higher medical prices and increased utilization. For example, hospital spending increased by 5.9% in 2009 compared with 4.5% in 2008 and reached $760.6 billion. The total cost of physician and clinical services ($527.6 billion) rose by 6.3% in 2009 compared with 5.0% in 2008, and spending on prescription drugs ($246.3 billion) increased by 5.2% in 2009 compared with 3.2% in 2008.

To a lesser degree, increases in healthcare spending were minimally influenced by population growth and changes in demographic characteristics of the patient population. The authors said that the economic recession and rising unemployment, as well as baby boomers reaching Medicare eligibility, are among the factors expected to influence health spending during the next decade.—Charles Boersig