Health Affairs

Weak Economy in 2009 Causes Health Spending to Grow at Slowest Rate in Five Decades, Federal Analysts Say

But Rate Still Outpaces Overall Economic Growth, As Health Spending Rises to 17.6 Percent of GDP

Bethesda, MD -- During 2009, a year of deep recession followed by slow economic growth, national health care spending rose at its lowest rate in five decades in 2009, federal analysts reported today in the January issue of Health Affairs. Health spending rose only 4.0 percent in 2009 to $2.5 trillion, or $8,086 per person. That pace was slower than the 4.7 percent growth rate in 2008.

The severity and length of the recession “profoundly influenced” health spending in 2009, say the authors of the report, analysts at the Centers for Medicare and Medicaid Services (CMS). The recession contributed to a historically low rate of growth in private health insurance spending, slower growth in consumer out-of-pocket spending, and a decline in health care providers’ investments in structures and equipment. “We had an unemployment rate that was higher than any other recent period that contributed to a large number of people losing their health insurance, and having much less income to devote to health care,” says CMS economist Anne Martin, the paper’s lead author.

At the same time, federal spending grew quickly, due to an injection of funding into Medicaid from the 2009 stimulus law and the enrollment of 3.5 million more people in Medicaid. In addition, spending on prescription drugs grew faster than in the past two previous years (5.3 percent growth in 2009, versus 3.1 percent in 2008 and 4.7 percent in 2007). Overall, despite the slowdown, health spending growth still outpaced the growth rate of the overall economy.

As a result, health spending grew to 17.6 percent of the gross domestic product in 2009, a full percentage point higher than the 16.6 percent in 2008 and the largest one-year increase in the history of the National Health Expenditure Accounts (1960-2009). By the end of 2009, the United States was devoting more than one-sixth of its financial resources to health care, say the authors.

CMS’s examination of spending on health care services (such as hospitals, physicians, and retail prescription drugs) and the payers and programs that pay for such care (such as private insurance, Medicare, and Medicaid) is part of the federal government’s annual snapshot of US health spending trends based on the most current data available.

This year’s report includes changes to the health accounts associated with a once-every-five-year comprehensive revision. The estimates in the accounts are benchmarked to incorporate information from the quinquennial economic census and other data sources. Additionally, definitions and methods are reevaluated. This year’s comprehensive revisions affected all years from 1960 to 2008.

Slowdown in Private Health Insurance Spending Growth

The recession contributed to a historically low rate of growth in private health insurance spending (1.3 percent in 2009, compared to 3.5 percent in 2008). The number of people enrolled in private health insurance plans declined 3.2 percent in 2009. Consequently, private health insurance spending accounted for a slightly smaller share of total health expenditures in 2009 (32 percent) than in 2008 (33 percent). Total private health insurance premium growth shrunk by more than half, from 3.5 percent in 2008 to 1.3 percent in 2009, climbing at the slowest rate in the history of the national health accounts. Growth in private health insurance spending on benefits also slowed, to 2.8 percent in 2009 from 4.4 percent in 2008.

Slowdown in Consumer Out-of-Pocket Spending Growth

There was also a slowdown in the growth of consumer out-of-pocket spending. Consumer out-of-pocket spending increased only 0.4 percent in 2009, reaching $299.3 billion. The slower rate was tied to declines in out-of-pocket spending for dental services, services provided by nursing care facilities, and physician and clinical services, largely a result of decreased use as consumers delayed getting medical care due to lack of resources.

Federal Share of Health Spending Expands

Although spending growth slowed for most sponsors of health care, federal government spending for health care grew quickly in 2009, in large part due to the expansion in Medicaid. The federal government spent 17.9 percent more on health care in 2009 than in 2008, absorbing 27 percent of the cost of the US health care bill. The increase in federal outlays was due primarily to the infusion of funds into Medicaid from the American Recovery and Reinvestment Act. Meanwhile, the share of spending by households, private businesses, and state and local governments fell by roughly one percentage point each.

Highlights of public program spending trends were as follows:

• Medicaid. Total federal and state Medicaid spending accounted for 15 percent of the national health care bill in 2009, reaching $373.9 billion. Rising unemployment and rapid increases in enrollment were the main contributors to a near-doubling of Medicaid spending growth, from 4.9 percent in 2008 to 9.0 percent in 2009. As a result of $34 billion in additional aid to the states from the Recovery Act, federal Medicaid expenditures increased 22.0 percent in 2009, the highest rate of growth since 1991. Meanwhile, state expenditures declined 9.8 percent, the largest drop in the program’s history.
  
  
• Medicare. Medicare spending reached $502.3 billion in 2009. One of every five dollars spent on US health care was spent on Medicare goods and services in 2009, but program spending growth stayed stable from the previous year (7.9 percent). Program enrollment in fee-for-service Medicare continued to fall, as beneficiaries chose to enroll in managed care instead. Medicare Advantage expenditures reached $125.3 billion, accounting for 25 percent of total Medicare spending, a share that has nearly doubled since 2003. Medicare Advantage expenditures grew 15.8 percent in 2009, down from 21.4 percent in 2008 and below the recent peak growth rate of 49.4 percent in 2006.

Health Sector Spending Highlights:

• Hospital spending. Spending on hospital care reached $759.1 billion in 2009, an increase of 5.1 percent from the previous year and approximately the same rate as in 2008. But the growth rate was slower than growth between 1999 and 2007, when spending increased an average of 7.2 percent annually. Because fewer people had private coverage and there was a “moderate to significant” decrease in hospital admissions, growth in private health insurance spending on hospital care slowed (2.7 percent in 2009 versus 5.6 percent in 2008). Meanwhile, Medicaid hospital spending grew 10.2 percent in 2009, more than three times the rate (3.3 percent) in 2008.
  
  
• Physician and clinical services. Spending for physician and clinical services reached $505.9 billion in 2009. Spending climbed at the slowest rate since 1996. The recession had a noticeable impact on the use of physician and clinical services, with a decline in the number of visits to physician offices in 2009.
  
  
• Retail prescription drugs. Spending on prescription drugs reached $249.9 billion in 2009, growing 5.3 percent from the previous year. Faster growth in both prescription drug prices and use contributed to accelerated spending growth in 2009.

Health Affairs, published by Project HOPE, is the leading journal of health policy. The peer-reviewed journal appears each month in print, with additional Web First papers published weekly at www.healthaffairs.org. You can also find the journal on Facebook and Twitter and download Narrative Matters on iTunes. Address inquiries to Sue Ducat at (301) 841-9962 or sducat@projecthope.org