CMS Releases Annual Report on Health Spending

Earlier today, CMS released its annual report on national health spending for the year 2008.  In summary, health spending grew at a rate of 4.4% (over 2007), equating to a per capita cost of $7,681 and a total cost of $2.3 trillion.  This rate of growth, per CMS, is the slowest increase since 1960 although still more than 1.5 times the rate of GDP growth for the year.  As a percentage of total GDP, health care increased to 16.9% in 2008.

Like most industries, health care spending slowed due to the flagging economy.  The general spending for all services across the health industry slowed with the greatest spending reduction occurring in hospital care.  Inside the data, the percentage of spending for health care attributable to or paid for by private funds increased only 2.8%; a definite reflection of the slowing economy coupled with increasing job losses.  Private health insurance spending increased by only 3.9%; another indicator of a slowing economy, job losses, and reduced insurance coverage across the workforce. 

Other information of note contained in the report is as follows.

  • Hospital spending in 2008 grew 4.5 percent to $718.4 billion, compared to 5.9 percent in 2007, the slowest rate of increase since 1998. 
  • Physician and clinical services’ spending increased 5.0 percent in 2008, a deceleration from 5.8 percent in 2007. 
  • Retail prescription drug spending growth also decelerated to 3.2 percent in 2008 as per capita use of prescription medications declined slightly, mainly due to impacts of the recession, a low number of new product introductions, and safety and efficacy concerns.
  • Spending growth for both nursing home and home health services decelerated in 2008.   For nursing homes, spending grew 4.6 percent in 2008 compared to 5.8 percent in 2007.  For home health, spending grew 9% in 2008 compared to 11.8% in 2007.
  • Total health care spending by public programs, such as Medicare and Medicaid, grew 6.5 percent in 2008, the same rate as in 2007. 
  • Health care spending by private sources of funds grew only 2.6 percent in 2008 compared to 5.6 percent in 2007. 
  • Private health insurance premiums grew 3.1 percent in 2008, a deceleration from 4.4 percent in 2007.  

Viewed in light of the present health reform discussions in Washington and the upcoming reconciliation activities between the House reform bill and the Senate reform bill, today’s information illuminates some rather disconcerting facts; facts that will undoubtedly be altered by the outcome of the final reform legislative process.

  • Of all health expenditures in 2008, 52.7% were privately funded and 47.3% were funded by government (35% by the Federal government).  Without question, these percentages will become inverted by the passage of reform legislation as government will become the predominant payer for health care in the U.S. over time.  Also of interest is the relatively flat share of health expenditures funded by the states. The Federal government has been gradually increasing its funding, principally by expanding its share of funding for Medicaid, alleviating the states of an increasing benefit burden.   With health reform foretelling a dramatic increase in Medicaid eligibility and enrollment, it will be interesting to see if more of the Medicaid burden is shifted back to the states.
    • In 1960, 75.5% of all health expenditures were paid for privately.  With the passage of Title 18 and Title 19 in the early 60’s, by 1967 the shift toward government payment had begun with private funds supporting 62.5% of health spending and government (and taxpayers) picking up the balance – 37.5%.  Health care spending in 1960 represented 5.2% of GDP and total spending on health care was $27.5 billion.
    • By 1970, total health spending had grown to $74.9 billion, a 172% increase since 1960 and up to 7.2% of GDP.  Government was now paying for more than 1/3 of all health expenditures (37.5%) or an increase in total outlays (dollars) since 1960 of 268%.
    • By 1980,  total health spending eclipsed the trillion dollar level – $1.099 trillion, a 208% increase since 1970.  Government’s share of this pie was now 42% and in real dollar outlays, government spending had increased since 1970 by 245% (a bit slower than the jump between 1960 and 1970 as both Medicare and Medicaid were now fully implemented).  In 1982, health spending equated to 10% of GDP.
    • By 1990, total health spending approached the three trillion level – $2.814 trillion, a 155% increase over 1980.  Government’s percentage remained essentially flat at 40% but in terms of real dollar outlays, spending increased from 1980 by over 250%.
    • By 2000, total health spending reached $4.788 trillion and accounted for 13.6% of GDP.  Government’s percentage of this spending had crept up to 44% and real dollar outlays had increased 168% since 1990.
    • In 2008, total health spending reached $7.681 trillion and accounted for 16.2% of GDP and 47 cents out of every dollar spent is by the government.  Since 2000, total spending on health care has increased over 60% and in real dollar outlays, government spending has increased by 72%. 

Perhaps of greatest concern to me as I reviewed the CMS release and the numbers today is how much health spending has exploded, particularly governmental health spending since 1970. I’m further concerned by the continued escalation of spending between 2000 and 2008, especially when viewed in comparison to the GDP growth for the same period – 18.5% GDP growth and 72% growth in real dollar government spending on health care.  Frankly, I don’t see anything in the reform bills (House or Senate) and the likely compromise, final bill that will change this paradigm except perhaps, to a worse state.

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