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Economy puts damper on national healthcare spending growth

U.S. healthcare spending was up 3.9 percent in 2010, just slightly more than the 3.8 percent growth seen in 2009, according to numbers released Monday by the Centers for Medicare & Medicaid Services.

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The rate of growth in healthcare spending in 2009 and 2010 marked the two slowest rates in the 51 years that the Centers for Medicare and Medicaid Services has been tracking it. Total 2010 health spending rose to $2.6 trillion, or $8,402 per person, the agency said.

Persistently high unemployment, a substantial loss of private health insurance coverage, lower median household income and increased cost-sharing resulted in individuals declining care or seeking less expensive treatment options, CMS analysts said in a Jan. 9 tele-briefing with reporters.

This translated into lower use of hospitals, physician and clinical services and retail prescription drugs in 2010. That also meant reduced growth in private health insurance and out-of-pocket, Medicare and Medicaid spending than in 2009, according to the federal government's annual snapshot of health spending trends based on the most current data. The findings also appear in the January Health Affairs journal.

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"Even though the recession officially ended in 2009, its impact on the health sector appears to have continued in 2010, and individuals remain cautious about their spending," said Anne Martin, an economist in CMS' Office of the Actuary and lead author of the study.

The deceleration was offset by faster growth in net costs of private health insurance and investment in structures and equipment, she added.

Although some provisions of the Patient Protection and Affordable Care Act were established in 2010, their overall effect on spending was minimal. The most prominent provisions of the health reform law -- expansion of Medicaid and the creation of health insurance exchanges -- will not be operational until 2014.

Spending on hospital services grew 4.9 percent in 2010 from 6.4 percent in 2009.  Consumers postponed or used less hospital care, reflected in the decline of hospital admissions, slower acceleration in emergency room visits, outpatient visits and outpatient surgeries.

For physician and clinical services, spending grew at a historically low rate of 2.5 percent in 2010 based on fewer visits and a less severe flu season in 2010, Martin said.

For retail prescription drugs, spending was at a historically low rate of 1.2 percent in 2010 from 5.1 percent in 2009 based on decreased use and a continued increase in generic medications, loss of patent protection for some brand-name drugs, and an increase in Medicaid prescription drug rebates called for by the health reform law.

For payers and programs, growth in private health insurance premiums grew at 2.4 percent and benefits at 1.6 percent. The lower growth in premiums reflected a continued decline in private health insurance enrollment and the move by consumers to lower cost plans.

Lower growth in benefits came with reduced use. For the first time in seven years, growth in total premiums exceeded growth in total benefits, and as a result, the private health insurance net cost ratio increased to 12.1 percent in 2010 from 11.4 percent in 2009.

"Since 2007, the recession and legislation led to a noticeable change in the share of healthcare spending that were financed by businesses, households and government," Martin said.

The federal government financed 29 percent of total health spending in 2010, a substantial increase from the 23 percent in 2007. Meanwhile, the shares of the total healthcare bill financed by state and local government at 16 percent, private businesses at 21 percent, and households at 28 percent, declined slightly during the same time period.

In 2010, Medicare spending grew 5 percent, decelerating from 7 percent in 2009, primarily on slower growth in Medicare Advantage costs due to an adjustment to payment rates.

Medicaid costs increased 7.2 percent in 2010 compared with 8.9 percent in 2009, on slower enrollment growth after the surge in 2009, when the largest job and income losses occurred. Federal Medicaid expenditures increased 8.9 percent, while state grew 3.9 percent due to $41 billion in enhanced federal aid to states from the increased federal medical assistance percentages (FMAP) that the stimulus law authorized in 2009.

Historically, health spending increases with the economy following a downturn, said Steve Heffler, director of the national health statistics group in the Office of the Actuary. This was a very deep and significant recession, more so than in the past, and that is one of the reasons for the historically low growth rates.

"They have rebounded in the past, but that doesn't mean that this cycle and the future will be like it has been in the past," he said.

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