Health Affairs

During 2009, a year of deep recession followed by slow economic growth, national health care spending rose at its lowest rate in five decades, federal analysts report in the January issue of Health Affairs, released today.

Health spending rose only 4.0 percent in 2009 to $2.5 trillion, or $8,086 per person. That pace was slower than the 4.7 percent growth rate in 2008, say the analysts from the Centers for Medicare and Medicaid Services (CMS) Office of the Actuary in their annual report on national health spending.

Despite the slowdown, health spending growth still outpaced the growth rate of the overall economy. As a result, health spending grew to 17.6 percent of the gross domestic product in 2009, a full percentage point higher than the 16.6 percent in 2008, marking the largest one-year increase in the history of the National Health Expenditure Accounts (1960-2009).

The severity and length of the recession “profoundly influenced” health spending in 2009, say CMS economist Anne Martin and coauthors David Lassman, Lekha Whittle, Aaron Catlin, and others from the National Health Expenditure Accounts Team. The recession contributed to a historically low rate of growth in private health insurance spending, slower growth in consumer out-of-pocket spending, and a decline in health care providers’ investments in structures and equipment. Moreover, as Martin explained at a reporters briefing, the swift impact of the recession on employment and income caused health spending to decline almost immediately after GDP began to decline, rather than after a one-to-two year lag period as in previous downturns.

However, federal spending grew substantially, due to an injection of funding into Medicaid from the 2009 stimulus law and the enrollment of 3.5 million more people in Medicaid. In addition, spending on prescription drugs grew faster than in the past two previous years (5.3 percent growth in 2009, versus 3.1 percent in 2008 and 4.7 percent in 2007).

You can find discussions of the CMS spending report in many media outlets, including the New York Times, the Wall Street Journal, the Washington Post, Politico, and Bloomberg. In addition, you can read more on the effects of the recession on health insurance and more from CMS on health spending differences by age and gender in the January Health Affairs issue, which also features a cluster of articles on accountable care organizations.

While the analysis by Martin and coauthors does not include any impacts associated with the Affordable Care Act, the impacts of health reform will figure prominently in the 2010 version of CMS’ annual projection of national health care spending over the coming decade. These projections will appear this winter in the pages of Health Affairs; in the meantime, you can check out CMS’ revisions of last year’s ten-year spending projections, which incorporate the effects of the Affordable Care Act.

This year’s CMS spending report for 2009 includes changes to the health accounts associated with a once-every-five-year comprehensive revision. The estimates in the accounts are benchmarked to incorporate information from the quinquennial economic census and other data sources. Additionally, definitions and methods are reevaluated. This year’s comprehensive revisions affected all years from 1960 to 2008.

Slowdown in Private Health Insurance Spending Growth

The recession contributed to a historically low rate of growth in private health insurance spending (1.3 percent in 2009, compared to 3.5 percent in 2008).  The number of people enrolled in private health insurance plans declined 3.2 percent in 2009. Consequently, private health insurance spending accounted for a slightly smaller share of total health expenditures in 2009 (32 percent) than in 2008 (33 percent). Total private health insurance premium growth shrunk by more than half, from 3.5 percent in 2008 to 1.3 percent in 2009, climbing at the slowest rate in the history of the national health accounts. Growth in private health insurance spending on benefits also slowed, to 2.8 percent in 2009 from 4.4 percent in 2008.

Slowdown in Consumer Out-of-Pocket Spending Growth

There was also a slowdown in the growth of consumer out-of-pocket spending. Consumer out-of-pocket spending increased only 0.4 percent in 2009, reaching $299.3 billion. The slower rate was tied to declines in out-of-pocket spending for dental services, services provided by nursing care facilities, and physician and clinical services, largely a result of decreased use as consumers delayed getting medical care due to lack of resources.

Federal Share of Health Spending Expands

Although spending growth slowed for most sponsors of health care, federal government spending for health care grew quickly in 2009, in large part due to the expansion in Medicaid. The federal government spent 17.9 percent more on health care in 2009 than in 2008, absorbing 27 percent of the cost of the U.S. health care bill. The increase in federal outlays was due primarily to the infusion of funds into Medicaid from the American Recovery and Reinvestment Act. Meanwhile, the share of spending by households, private businesses, and state and local governments fell by roughly one percentage point each.

Highlights of public program spending trends were as follows:

• Medicaid. Total federal and state Medicaid spending accounted for 15 percent of the national health care bill in 2009, reaching $373.9 billion. Rising unemployment and rapid increases in enrollment were the main contributors to a near-doubling of Medicaid spending growth, from 4.9 percent in 2008 to 9.0 percent in 2009. As a result of $34 billion in additional aid to the states from the Recovery Act, federal Medicaid expenditures increased 22.0 percent in 2009, the highest rate of growth since 1991. Meanwhile, state expenditures declined 9.8 percent, the largest drop in the program’s history.
• Medicare. Medicare spending reached $502.3 billion in 2009. One of every five dollars spent on US health care was spent on Medicare goods and services in 2009, but program spending growth stayed stable from the previous year (7.9 percent). Program enrollment in fee-for-service Medicare continued to fall, as beneficiaries chose to enroll in managed care instead. Medicare Advantage expenditures reached $125.3 billion, accounting for 25 percent of total Medicare spending, a share that has nearly doubled since 2003.  Medicare Advantage expenditures grew 15.8 percent in 2009, down from 21.4 percent in 2008 and below the recent peak growth rate of 49.4 percent in 2006.  

Health Sector Spending Highlights:

• Hospital spending. Spending on hospital care reached $759.1 billion in 2009, an increase of 5.1 percent from the previous year and approximately the same rate as in 2008. But the growth rate was slower than growth between 1999 and 2007, when spending increased an average of 7.2 percent annually. Because fewer people had private coverage and there was a “moderate to significant” decrease in hospital admissions, growth in private health insurance spending on hospital care slowed (2.7 percent in 2009  versus 5.6 percent in 2008). Meanwhile, Medicaid hospital spending grew 10.2 percent in 2009, more than three times the rate (3.3 percent) in 2008.  
• Physician and clinical services. Spending for physician and clinical services reached $505.9 billion in 2009. Spending climbed at the slowest rate since 1996. The recession had a noticeable impact on the use of physician and clinical services, with a decline in the number of visits to physician offices in 2009. 
• Retail prescription drugs. Spending on prescription drugs reached $249.9 billion in 2009, growing 5.3 percent from the previous year. Faster growth in both prescription drug prices and use contributed to accelerated spending growth in 2009.

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This entry was posted on Thursday, January 6th, 2011 at 12:34 pm and is filed under All Categories, Health Reform, Insurance, Medicaid, Medicare, Pharma, Physicians, Spending. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.