Embargoed Until:
February 24, 2009
12:01 a.m. Eastern Time



Christopher Fleming

U.S. Health Spending Projected To Have Reached $2.4 Trillion In 2008

Health’s Share Of The Economy Expected To Increase At Fastest-Ever Rate In 2009 Amid Ongoing Recession And Shrinking Private Health Insurance Coverage, Says Federal Report

Expected Slower Personal Income Growth And Declining Private Coverage Lead To Projected 15-Year Low In Private Health Spending Growth, CMS Reports

Bethesda, MD -- According to government projections, U.S. health care spending is estimated to have reached $2.4 trillion in 2008 and is projected to experience its largest single-year increase as a share of the economy in 2009 as the effects of the recession ripple through the health care sector, federal analysts report in a study published today on the Health Affairs Web site. The 10-year health care spending projections from economists at the Centers for Medicare and Medicaid Services (CMS) show how the economic downturn is expected to affect both public and private health care spending as more Americans lose their health insurance and as federal and state governments face projected increases in Medicaid enrollment and spending. http://content.healthaffairs.org/cgi/content/abstract/hlthaff.28.2.w346

By 2018, national health spending is projected to nearly double, reaching $4.4 trillion and consuming 20.3 percent of the gross domestic product (GDP), the CMS analysts say. In 2009, the United States is expected to experience a decrease in nominal GDP for the first time since 1949. Simultaneously, it is projected to see the largest one-year increase in the health share of GDP ever recorded: an increase of 1.0 percentage point from a projected 16.6 percent share in 2008 to an expected 17.6 percent share in 2009, largely as a result of the recession, according to the federal government.

"The recession has wide-reaching implications for the health care sector," said CMS economist Andrea Sisko, one of the authors of the government’s annual health care projection report. "Policymakers and the public will be faced with tough decisions regarding the future of the health care system."

Projected slower income growth and an expected decline in private health insurance coverage are also expected to dampen growth in private health spending, which is expected to fall to a 15-year low of 3.9 percent in 2009, when private health spending will reach $1.3 trillion. At the same time, growth in health spending among public payers is predicted to accelerate, from 6.4 percent in 2007, or $1.0 trillion in spending, to 7.4 percent, or $1.2 trillion in spending, by 2009, driven largely by faster growth in Medicaid enrollment and spending.

The growth in national health spending is expected to accelerate in 2011 as economic conditions improve and as public and private health spending growth rebounds. As economic conditions are expected to improve beginning in 2010, private health spending growth is projected to begin accelerating, rising from 4.2 percent in 2010 to 6.1 percent by 2018. Public spending growth also is expected to accelerate rapidly after 2010, in large part because aging baby boomers will be enrolling in Medicare. By 2018, growth in national health spending is expected to be 7.2 percent. Public spending growth is set to outpace private spending growth over the next decade. Analysts predict that the public sources will account for more than half of all health spending by 2018.

Medicare And Medicaid

Medicare spending is expected to have reached $466 billion in 2008, an increase of 8.1 percent from 2007. This is driven largely by projected faster growth in spending for prescription drugs, hospital and physician care, and administrative costs. If a mandated 21 percent physician payment rate cut goes into effect in 2010, total Medicare spending growth is projected to slow to 2.5 percent in that year. As the baby-boom generation becomes eligible for Medicare, spending is expected to accelerate, growing 8.6 percent by 2018, up from 6.2 percent in 2011.

The recession is expected to accelerate growth in Medicaid spending, driven by much faster projected enrollment (4.0 percent in 2008 versus 0.2 percent in 2007), particularly among non-disabled children and adults. Spending on Medicaid is expected to have been $352.1 billion in 2008. By 2018, it is expected to more than double to $801 billion, an acceleration tied to an increase in the number and share of costly aged beneficiaries who will be enrolled in the program.

Private Health Insurance

As the economy slows, private health insurance spending is expected to have risen to $817.4 billion in 2008, climbing at a slower pace of 5.5 percent compared to 6.0 percent in 2007. This slower spending growth is driven by slower projected price growth and higher unemployment rates that are expected to result in a reduction in the number of people with private health coverage. On a per enrollee basis, private health insurance benefit spending growth is expected to slow from 6.5 percent in 2007 to 5.9 percent in 2009.

Out-Of-Pocket Spending

The economic recession is also expected to significantly dampen growth in out-of-pocket spending, from 3.8 percent in 2008 to 1.4 percent in 2009. Out-of-pocket spending is expected to have reached $278.8 billion in 2008 and to reach $282.7 billion in 2009. The slower growth is due to several reasons. Out-of-pocket medical spending typically declines during a recession because people may spend less as a result of reduced income. In addition, with expected increases in Medicaid enrollment, out-of-pocket spending by new enrollees typically is lower than what they paid when they were uninsured or covered by private insurance.

Other Highlights From The Report:

Prescription drugs. Prescription drug spending growth is expected to have slowed from 4.9 percent in 2007 to 3.5 percent in 2008, reaching $235.4 billion in spending in 2008. This is due mostly to the effects of the recession, as growth in the number of filled prescriptions slowed and patients became more willing to switch from expensive brand-name medications to cheaper generics. Between 2014 and 2018, prescription drug spending growth is expected to rebound, as the generic dispensing rate is anticipated to level off and new, expensive specialty drugs may be approved. By 2018, prescription spending is projected to reach $453.7 billion.

Hospitals. By 2018, total hospital spending is expected to reach nearly $1.4 trillion, up from a projected $746.4 billion in 2008. The growth in hospital spending is expected to slow, from 7.2 percent in 2008 to 5.7 percent in 2009, as a result of slower private spending growth for hospital care.

Physicians and clinical services. Growth in total physician and clinical services is expected to continue slowing between 2008 and 2009, from 6.2 percent to 6.0 percent. Expenditures are expected to grow to $539.1 billion in 2009. This slowdown is largely due to slower physician price growth and slower projected income growth.

Long-term care. Home health care spending is projected to have grown 9.1 percent in 2008, down from 11.3 percent growth in 2007, and to have reached $64.4 billion. This slowdown, attributable to adjustments in overpayments tied to Medicare, is expected to continue through 2011. From 2013 through 2018, home health care spending growth is expected to remain steady, averaging 7.9 percent per year and reaching $134.9 billion in the next decade. Although Medicare has been the dominant payer of home health care, Medicaid is expected to become the largest payer of these services by 2010, as more care moves away from institutions to home and community-based settings.

Nursing home spending is expected to have risen 4.6 percent in 2008, reaching $137.4 billion. During the rest of the projection period, nursing home care spending growth is expected to accelerate to a 6.6 percent annual rate by 2018 as a result of faster enrollment growth among the population eligible for Medicare and among aged beneficiaries enrolled in Medicaid.

After the embargo lifts, the article by Sisko and coauthors will be available at http://content.healthaffairs.org/cgi/content/abstract/hlthaff.28.2.w346


Health Affairs, published by Project HOPE, is the leading journal of health policy. The peer-reviewed journal appears bimonthly in print with additional online-only papers published weekly as Health Affairs Web Exclusives at www.healthaffairs.org. The full text of each Health Affairs Web Exclusive is available free of charge to all Web site visitors for a two-week period following posting, after which it will switch to pay-per-view for nonsubscribers. Web Exclusives are supported in part by a grant from the Commonwealth Fund.


©2009 Project HOPE–The People-to-People Health Foundation, Inc.