Washington Health Policy Week in Review
National Health Expenditures Now Grab 17.3 Percent of GDP, Study Projects

By Jane Norman, CQ HealthBeat Associate Editor

February 4, 2010 -- The national health expenditures are projected to have risen to $2.5 trillion in 2009, or 17.3 percent of the Gross Domestic Product, boosted by spending on public health programs amidst a deepening recession, according to a new government study published Thursday.

The 1.1 percentage-point increase to 17.3 percent of GDP compared with 16.2 percent in 2008 was the largest single-year increase since the government began tracking health spending in 1960, said the study by actuaries at the Centers for Medicare and Medicaid Services published in the journal Health Affairs.

Health spending was projected to have risen by 5.7 percent between 2008 and 2009, while the GDP in a struggling U.S. economy fell by 1.1 percent. Projections are made by the study, rather than final figures, because not all the data for calendar year 2009 was available to the actuaries.

"This is certainly a very steep rate of growth for the health share of the GDP," said Christopher J. Truffer, an actuary and report co-author. However, analysts project that health spending as a share of GDP would be relatively flat for the next few years assuming an economic rebound and a healthier GDP.

The rate of health care spending growth in 2009 was due in large part to swelling Medicaid enrollment as jobless Americans lost their private health insurance through employers and fell into poverty. Health spending by public entities totaled $1.2 trillion, growing by 8.7 percent between 2008 and 2009. Spending by private payers was slightly higher at $1.3 trillion but the growth rate was just 3 percent.

Private insurance enrollment is expected to have declined by 1.2 percent in 2009 compared with the previous year. The study noted that the decline occurred despite substantial assistance from federal subsidies provided by the economic stimulus law and intended to help jobless people extend their private employer-provided policies through COBRA.

A somewhat pessimistic picture is presented for 2010 as well. Although the economy is expected to grow in 2010, private health spending growth is projected to slow to 2.8 percent compared with 2009 due to reduced private health insurance enrollment and a continued high rate of unemployment, the study says. The COBRA subsidies also will expire.

There is also a slowdown in public spending expected for 2010 compared to 2009, but that's calculated under the assumption that Congress will fail to avert a scheduled 21.3 percent cut in physician reimbursements under the Medicare program. If the cut does take effect — which it likely won't since Congress has acted repeatedly to turn aside other cuts — overall health spending would rise by 3.9 percent in 2010 compared with 2009. If instead physicians receive the same Medicare pay they receive now, the growth in overall health spending would be 4.7 percent, the study said, still less than this year.

But after 2010, the CMS actuaries expect the overall growth in health care spending to take off, hitting 7 percent by 2016. "This acceleration is primarily a result of expected faster growth in disposable personal income associated with the economic recovery," the study says. By 2019, an increasing number of baby boomers moving from private coverage into Medicare would contribute to slowing private spending growth and accelerating public spending growth, the actuaries say.

No assumptions are made in the projections about health care overhaul measures pending in Congress or their effect on cost containment.

In the Medicare program, spending is projected to have increased 8.1 percent in 2009 compared with the previous year, rising to $507.1 billion. That's lower growth than in the previous year, attributed to less spending growth in the program on hospital care and prescription drugs. In the years to come, with or without the physician payment fix, Medicare spending is expected to climb more than 7 percent annually as baby boomers grow old enough to sign up.

Federal and state Medicaid spending combined is projected to have grown 9.9 percent between 2008 and 2009, reaching $378.3 billion. "Enrollment increases are projected to be most notable among nondisabled children and adults during the recession as working parents become unemployed and lose access to employer coverage," the study notes.

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