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Study: Health Care to Gobble Far Bigger Chunk of GDP This Year

By John Reichard, CQ HealthBeat Editor

The year 2009 will mark the biggest-ever one-year jump in health care's share of the Gross Domestic Product (GDP), with health care outlays rising a full percentage point to 17.6 percent, government economists say in a new report.

Projections released by economists at the Centers for Medicare and Medicaid also show health care outlays rising from $2.4 trillion in 2008 to $4.4 trillion by 2018, or 20.3 percent of the GDP.

The unprecedented one-year jump in 2009 is largely a result of the recession, according to the analysis posted Tuesday on the Web site of the academic journal Health Affairs. Although the rate of health care spending growth will slow in 2009 compared to 2008, health care will bite off a big chunk of GDP because the economy is projected to actually shrink this year, according to the study.

For 2009, health spending will grow 5.5 percent, down from a growth rate of 6.1 percent in 2008. But GDP is expected to decrease 0.2 percent. "In 2009, the United States is expected to experience a decrease in nominal GDP for the first time since 1949," Health Affairs noted in a news release announcing the findings. A GDP figure is "nominal" if it hasn't been adjusted for inflation.

Even if health spending growth is moderating because of the recession, the one-year jump is likely to figure prominently in arguments that Congress must address overhaul health care this year. The Obama administration emphasized in a "fiscal responsibility" summit Monday that bearing down on health care costs is the key to controlling spending in the Medicare and Medicaid entitlement programs.

Government analysts said the recession would dampen health spending growth in the private sector while tending to boost outlays in government health spending as more jobless Americans enroll in Medicaid.

The study projects that private health insurance enrollment will drop from 195.5 million in 2008 to 189.5 million in 2010.

A "significant" recession would also have a big impact on Medicare, the program's chief actuary Richard Foster said at a press briefing Monday on the projections. The Medicare trust fund that pays for inpatient care in the hospital would suffer from higher unemployment and slower wage growth because "right away you get a drop in the payroll taxes" that go into the fund, Foster said. The exhaustion of the trust fund, projected for 2019 in a 2008 Medicare Trustees report, could come one to three years sooner, or as early as 2016 depending on the extent of the recession, Foster said.

As incomes grow more slowly and private health insurance coverage declines, growth in private health spending will fall to a 15-year low of 3.9 percent in 2009, the study also noted. At the same time, the growth rate in health spending among public payers will accelerate from 6.4 percent in 2007 to 7.4 percent in 2009. But the cooling off of private spending growth will be temporary. The forecasters said that as economic conditions improve starting next year, the growth rate for private spending will rise from 4.2 percent in 2010 to 6.1 percent by 2018.

But public spending growth also will accelerate largely because baby boomers will begin enrolling in Medicare. Public spending will grow faster than private spending over the next decade, and will account for more than half of all U.S. health spending by 2018.

The study predicts that final spending figures for 2008 will show Medicare spending of $466 billion for the year, 8.1 percent more than in 2007. The biggest factors driving the increase are spending for prescription drugs, hospital and physician care. The boomer-fueled enrollment increase will increase spending growth from 6.2 percent in 2011 to 8.6 percent by 2018, the study projected. Spending for Medicaid will rise from $352 billion in 2008 to $801 billion by 2018.

Medicaid enrollment grew at a rate of 4 percent in 2008 compared to 0.2 percent in 2007 owing to the effects of the recession, analysts said.

The study estimates the following spending growth rates for overall health spending in 2008: prescription drugs, 3.5 percent; hospitals, 7.2 percent; physician and clinical services, 6.2 percent; home health care, 9.1 percent; and nursing homes, 4.6 percent.

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