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CMS Report Totals Health Care Spending at $2.3 Trillion in 2008

By Alex Wayne, CQ Staff

January 5, 2009 -- National spending on health care grew in 2008 at the slowest rate in decades, according to new government figures, but it still greatly outpaced the growth of the overall economy.

Total health care spending in 2008 was $2.3 trillion, the Centers for Medicare and Medicaid Services (CMS) said in its annual spending report. That represents a 4.4 percent increase over 2007 spending—the lowest growth rate the agency has recorded since it started tracking the statistic in 1960.

But the rate of health care spending grew almost 70 percent faster in 2008 than the growth rate of the gross domestic product (GDP), which increased 2.6 percent.

The Obama administration pointed to the figures as justification for its ongoing efforts to overhaul the U.S. health care system.

"Health care spending as a percentage of GDP is rising at an unsustainable rate," said Jonathan Blum, director of CMS' Center for Medicare Management. "It is clear that we need health insurance reform now."

The government's estimate of national health care spending captures all U.S. expenditures on such services, including by the government and by private entities and individuals. On a per-capita basis, the country spent about $7,681 per person for health care in 2008. The United States spends far more per person for health care than any other industrialized nation, according to the Organization for Economic Co-operation and Development.

Health care spending has been a much-discussed issue throughout the congressional debate on an overhaul of the system. Democrats and Republicans agree that the growth of the nation's health care spending is dangerously uncontrolled and should be slowed, but they disagree sharply on how—and on whether legislation passed in the Senate (HR 3590) and the House (HR 3962) would have much impact.

Democrats have pointed to Congressional Budget Office estimates that their legislation would reduce the budget deficit as evidence that the bills would broadly reduce overall spending as well. But CMS' own actuary has said otherwise, estimating that either bill would lead to a more rapid increase in spending, largely because each would increase demand for services by greatly expanding insurance coverage.

The Senate bill, according to actuary Richard S. Foster, would increase spending by about 0.7 percent over what is expected under current law from 2010 to 2019, while the House bill would increase it by 0.8 percent.

In a Dec. 10 report on the Senate bill, Foster said that some of the measure's provisions "would have a significant downward impact on future health care cost growth rates," but he added that they would be "outweighed" by the bill's expansion of health insurance coverage. In a Nov. 12 report on the House bill, he said that most of its attempts at cost controls "would not have a significant impact on future health care cost growth rates."

The senior Republican on the House Ways and Means Committee, Dave Camp of Michigan, was the first member of Congress to ask Foster to study the bills.

"I agree we need reform, but both the House and Senate Democrat bills make the problem worse by increasing the cost of health care," Camp said in a statement Monday.

"They spend $1 trillion we don't have and bend the curve the wrong way," he added, referring to the bills' effects on the trajectory of spending.

The growth in health care expenditures in 2008 was largely driven by government spending, according to the CMS. Medicare and Medicaid, the health care entitlement programs for the elderly and the poor, spent 6.5 percent more in 2008 than in 2007. By comparison, health care spending by the private sector grew only about 2.6 percent.

The recession weighed heavily on spending, according to the CMS. Private health insurance premiums, for example, increased only 3.1 percent in 2008, down from a 4.4 percent increase in 2007. But CMS officials attributed the decrease in premiums to a decrease in enrollment: About 1 million people lost their private coverage, the agency estimated.

At the same time, enrollment in public programs—particularly Medicaid—swelled. According to the Kaiser Family Foundation, a health policy research center, Medicaid grew by 3 percent—adding about 1.3 million people to its rolls—between June 2007 and June 2008, compared with a 0.6 percent decline in Medicaid enrollment the previous year.

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