U.S. Health Spending at Historically Low Rate of Growth

Healthcare spending in the United States grew 4% in 2009, to $2.5 trillion, or $8,086 per person—the slowest rate of growth in the 50-year history of the National Health Expenditure Accounts (NHEA), due in great part to the economic recession. Findings were released today in report prepared annually by the Centers for Medicare & Medicaid Services (CMS) Office of the Actuary that summarizes recent trends in health spending.

The NHEA represent the official estimates of total healthcare spending in the United States and measure annual health spending by the types of goods and services delivered (hospital care, physician services, retail prescription drugs, etc.), by the programs and payers that pay for that care (private health insurance, Medicare, Medicaid, etc.), and by the sponsors who are ultimately responsible for financing that care (private businesses, households, and governments).

The 4% growth in 2009 was down from 4.7% in 2008, the second slowest rate of growth in the history of the NHEA, as the recession led to slower growth in private health insurance expenditures and out-of-pocket spending by consumers, and to a reduction in capital investments. Despite the slowdown, healthcare spending growth continued to outpace overall economic growth, which declined 1.7% in 2009 as measured by nominal Gross Domestic Product (GDP).

However, health spending as a share of the nation’s GDP continued to climb, reaching 17.6% in 2009, up 1.0 percentage point from 2008, the largest one-year increase in the history of the NHEA. In comparison to other recent recessions, the health spending share of GDP increased 0.7 percentage point in 1991 and 2001, and 0.8 percentage point in 1982.

The recession, which began in December 2007 and ended in June 2009, affected health spending as many consumers decreased their use of goods and services partially due to lost employer-based private health insurance coverage and reduced household income. This led to a deceleration in private health insurance spending, which increased only 1.3% in 2009 compared to 3.5% in 2008, that was due primarily to a 3.2% drop in enrollment.

At the same time, as more people became eligible for and enrolled in Medicaid, growth in that program’s spending accelerated to 9% in 2009 following 4.9% growth in 2008. With approximately $34 billion in enhanced federal aid for States (provided by the American Recovery and Reinvestment Act of 2009), federal Medicaid spending increased 22% and its share of total Medicaid spending reached 66% (from a 59% share in 2008). In contrast, State Medicaid spending declined 9.8%—the largest decline in the program’s history.

The economic downturn also affected consumer out-of-pocket spending, which slowed to 0.4% growth in 2009, as spending for dental services; nursing care facilities and continuing care retirement communities; and physician and clinical services declined.

A 2.7% reduction in expenditures for capital investments also contributed to the slowdown in health spending. In 2009, private and state and local government providers decreased their investment in structures and equipment by 4.3% and 1.1%, respectively.

Key statistics on the growth of healthcare spending in the new report include:

· Spending for freestanding nursing care facilities and continuing care retirement communities increased 3.1% in 2009 to $137.0 billion, a deceleration from growth of 5% in 2008.

· Spending for home healthcare services provided by freestanding facilities grew 10% to $68.3 billion following growth of 7.5% in 2008.

· Total healthcare spending by health insurance payers, which includes the Medicare and Medicaid programs, increased 5.1% in 2009, a slight deceleration from 5.3% growth in 2008.

· Out-of-pocket spending grew 0.4% in 2009 compared to 3.1% growth in 2008.

Click here to read the complete report.

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