Health Care Spending Slows, Takes Record Bite From GDP

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The recession put the squeeze on U.S. health care spending in 2009, but health care expenditures also took a bigger, record-setting bite out of the nation’s gross domestic product (GDP), according to a report released earlier this week by CMS.

Shedding light on consistently spiraling health care costs, total health care spending saw a 4% increase last year, reaching $2.49 trillion—or $8,086 per person. This represents both a drop from a 4.7% increase in such spending in 2008 and the smallest percentage rise in total annual health care outlay in the 50 years since the federal government began tabulating it. Yet despite recession-induced cuts in out-of-pocket spending by consumers and the curtailment of many hospitals’ expansion plans, health care spending consumed a greater, 17.6% share of the economy—up one percentage point from 16.6% in 2008.

More specifically, the report indicates, federal spending on Medicaid rose by nearly 22% in 2009—due in part to increased consumer enrollment in the program amid the recession. The inclusion of federal Medicaid spending in the economic-stimulus bill passed in early 2009 also served as a catalyst here. Several hard-hit states initiated 10% cuts in their Medicaid spending in 2009, with federal support helping them to grapple with enrollment increases.

Some states reportedly claim their Medicaid burden remains excessive, especially given the anticipated addition of some 16 million people to the rolls starting in 2014 as dictated by the new health law. Sen. Orrin Hatch (R-Utah), the incoming top Republican on the Finance Committee, has said the recent increase in Medicaid spending “will pale in comparison to what federal and state budgets will face under the unprecedented Medicaid expansion in the health law.”

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OECD Health Care Costs, 2008

Hospital spending, too, showed an uptick, the report indicates, rising by 5.1% to $759.1 billion in 2009 versus an increase of 5.2% in 2008. Such growth is less marked than that recorded between 1999 and 2007, when spending increased by an average of 7.2% annually. Decelerated private health insurance spending and slower price growth were catalysts here, CMS stated. However, such factors were offset by the increase in Medicaid spending sparked by heightened enrollment in 2009, CMS said.
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Moreover, private health insurance premiums grew 1.3% in 2009, marking a deceleration from a 3.5% growth rate recorded in 2008. Benefit payment growth slowed as well, trending downward from 4.4% in 2008 to 2.8% in 2009.

“These trends were heavily influenced by the recession as private health insurance enrollment declined,” CMS stated. “In 2009, spending for benefits increased faster than premiums, and as a result, the net cost of private health insurance (or the difference between premiums and benefits) fell to an 11.1% share of total private health insurance spending from 12.4% in 2008—a continuation of its recent decline.”

Meanwhile, spending on physician and clinical services increased 4.0% in 2009 to $505.9 billion, a deceleration from 5.2% growth in 2008. Decreased growth in the use and intensity of services in 2009 was partially offset by increasing prices.