CMS: Healthcare spending growth stays low in 2010

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Fistful of Money / Finance - 17.40 Kb

Historically low aggregate healthcare spending growth of 3.8 percent in 2009 continued into 2010 when it increased only 3.9 percent, according to researchers from the Centers for Medicaid & Medicare Services (CMS), who attributed the recent pattern of low growth to decreased consumption following the recession of the late-2000s.

“The slow growth in health spending in 2009 and 2010 was influenced by slower growth in the use of healthcare goods and services as consumers remained cautious about their spending–in part because of losses in private health insurance coverage, lower median household income and future financial uncertainty,” CMS economist Anne B. Martin, PhD, wrote in an article published in the January edition of  Health Affairs.

Martin added that a combination of factors, including an extended period of high unemployment and the lowest median inflation-adjusted income since 1996, caused healthcare spending to slow more drastically than in previous recessions.

“Although medical goods and services are generally viewed as necessities, the latest recession had a dramatic effect on utilization,” Martin wrote. “On average, between 2007 and 2009, growth in the use and intensity of healthcare goods and services contributed 1.4 percentage points to the annual growth in personal healthcare spending. This was much lower than its average contribution of 3.3 percentage points between 2000 and 2006, when personal healthcare spending grew 7.6 percent on average.”

In 2009, healthcare spending grew at its lowest rate since 1960, when the CMS first began collecting National Health Expenditure data. Total healthcare spending amounted to $2.6 trillion in 2010, or $8,402 per person, according to Martin. Despite slow growth, healthcare spending as a share of the gross domestic product (GDP) remained unchanged at 17.9 percent because nominal GDP grew at 4.2 percent in 2010, roughly the same as healthcare spending.

Because most of the Patient Protection and Affordable Care Act’s (PPACA) provisions will not be enacted until 2014, Martin wrote that it did not contribute significantly to total healthcare spending negatively nor positively.

Healthcare spending projections for 2010 that ignored the PPACA’s provisions estimated growth of 3.7 percent, according to Martin, suggesting that the PPACA’s effect on spending growth in 2010 was approximately 0.2 percentage point and less than 0.1 percentage point according to CMS’ latest estimates.

Several other findings in the report included:

  • Household healthcare spending totaled $725.5 billion in 2010, representing 28 percent of total healthcare spending;
  • Retail prescription drug spending grew 1.2 percent to $259.1 billion, 10 percent of total healthcare spending in 2010; a slowdown from 5.1-percent growth in 2009 and the slowest rate of growth for prescription drug spending recorded in the National Healthcare Expenditure;
  • The federal government spent $743 billion on healthcare in 2010, or 29 percent of the total healthcare spending; an increase of six percentage points from its share in 2007;
  • Medicaid spending growth slowed to 7.2 percent in 2010 from 8.9 percent growth in 2009;
  • State and local governments spent a $421 billion on healthcare in 2010, or 16 percent of total healthcare spending;
  • Hospital spending totaled $814 billion, which accounted for roughly 30 percent of total healthcare spending, and grew at 4.9 percent compared to growth of 6.4 percent in 2009;
  • Physician and clinical services spending accounted for 20 percent of total healthcare spending in 2010, or $515.5 billion, and its growth slowed from 3.3 percent growth in 2009 to 2.5 percent in 2010; and
  • Private businesses accounted for 21 percent of total healthcare spending in 2010, or $535 billion, or 21 percent of total health spending in 2010; down from a 23 percent share in 2007.

Martin concluded that the recession of the late-2000s affected the decisions of healthcare purchasers, providers and payors, forcing individual consumers to forgo care and the federal government to pay a larger share of healthcare costs.