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'Big Picture' Financing Study: Public Spending on Health Care Rises to 45 Percent

By Nellie Bristol, CQ HealthBeat Associate Editor

June 1, 2012 – The public sector paid for 45 percent of total spending on health care in 2010, a significant increase over the roughly one-third share in 1987, according to a analysis released this week by the National Institute for Health Care Management Foundation.

Between 1987 and 2010, federal spending through Medicare nearly tripled as a share of overall spending from 3.4 percent to 9.8 percent. At the same time, federal spending for Medicaid doubled as a share of total spending from 5.4 percent to 10.7 percent. Spending for health care by private business and households fell during the period.

Although federal insurance programs showed the largest increases, the study notes that federal spending on health care includes other areas, such as medical research and public health.

The study is the first in a series on "big picture" health spending planned by the foundation. Future topics include government spending on health entitlements and the concentration of health spending. The foundation's board members largely represent major insurers.

Overall, the report found, total spending on health care in the U.S. made up 18 percent of the gross domestic product and is projected to reach nearly 20 percent of GDP by 2020. By 2010, spending totaled $2.6 trillion, or more than $8,400 per capita. The vast majority of spending, 84 percent, paid for personal health care services. Sixteen percent of the total supported administrative costs for insurance, and public and private investments in research, structures and equipment and public health activities.

Hospital care accounted for the largest portion of total spending and grew more rapidly than other sectors. From 2006-2010, hospital care spending increased 21 percent, or $451 per person. "The combined impact of a large base and rapid growth was that this sector alone accounted for almost 40 percent to the total change in per-capita spending between 2006-2010," the report says. Increases in spending for physician and clinical services, home health and long term care each accounted for another 17 percent of the total increase in per-capita spending.

Although spending growth has slowed in the last three years, health spending continues to exceed economic growth, the analysis notes. The decrease in growth is attributed to the recession-related losses of employer sponsored health insurance and reluctance to spend money on health care. But, the analysis says, the slowdown "is part of a longer trend that preceded the recession" and could be partially attribute to policy changes and payment changes. "Such factors include an ongoing shift to value-based purchasing, the expiration of patents for numerous blockbuster drugs coupled with continued movement toward use of generics and reductions in provider payment rates by Medicare and Medicaid," the study says.

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