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Health Spending Outpaces GDP

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  • January 25, 2010
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A failing economy in the midst of a recession took its toll on health care spending in 2008. Health spending continued to surpass the economic growth rate in 2008, albeit at a much slower pace, according to a recent Centers for Medicare & Medicaid Services (CMS) Office of the Actuary report.
By the end of 2008, health spending in the United States grew 4.4 percent to $2.3 trillion, or $7,681 per person. The economic growth rate grew by just 2.6 percent.
Although this is reportedly the slowest growth rate in health spending since 1960, when CMS first started tracking expenditures, its share of the Gross Domestic Product (GDP) climbed 0.3 percentage points from 2007 to hit 16.2 percent in 2008.

According to the report, there were two leading impacts on health spending in 2008. First, in response to the recession, was a retroactive legislative provision of the American Recovery and Reinvestment Act of 2009 (Recovery Act), which shifted $7 billion of Medicaid spending from states to the federal government in fourth quarter 2008. Second, also blamed on the recession, was a sluggish growth rate in personal health care paid for by private sources, which increased just 2.8 percent in 2008.
The report goes on to say that federal government spending for health services and supplies increased 10.4 percent in 2008 due to a drop in tax revenue, changes to the tax code from the Economic Stimulus Act of 2008 and increases in the Federal Medical Assistance Percentages.
Other reasons are cited for the 8.6 percent increase in total Medicare spending in 2008, which amounted to $469.2 billion in expenditures. “The main reasons for the faster Medicare spending growth in 2008 were FFS spending for hospitals and a further shift in enrollment to Medicare Advantage plans, which have higher average Medicare payments for beneficiaries than FFS,” the report says.
All other health spending slowed or stayed the same:

  • Hospital spending in 2008 grew 4.5 percent to $718.4 billion, compared to 5.9 percent in 2007, the slowest rate of increase since 1998.
  • Physician and clinical services’ spending increased 5.0 percent in 2008, a deceleration from 5.8 percent in 2007.
  • Retail prescription drug spending growth also decelerated to 3.2 percent in 2008 as per capita use of prescription medications declined slightly, mainly due to impacts of the recession, a low number of new product introductions, and safety and efficacy concerns.
  • Spending growth for both nursing home and home health services decelerated in 2008. For nursing homes, spending grew 4.6 percent in 2008 compared to 5.8 percent in 2007.
  • Total health care spending by public programs, such as Medicare and Medicaid, grew 6.5 percent in 2008, the same rate as in 2007.
  • Health care spending by private sources of funds grew only 2.6 percent in 2008 compared to 5.6 percent in 2007.
  • Private health insurance premiums and benefits grew at their slowest rates in 2008 since 1967: 3.1 percent and 3.9 percent, respectively.

Read the complete report, released Jan. 5 in the health policy journal Health Affairs.

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