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Health Spending Growth and Trend

By January 12, 2012Commentary

Health care spending stayed at about 18% of the economy in 2010, which is probably the best news in the just-released report on our national health accounts from the Office of the Actuary.   (CMS OOA Report)  Although spending, at $2.6 trillion or $8402 per person, grew only 3.9% in nominal terms, that was still higher than inflation.  If we could keep this up for a few years, it would be very good news, but that is quite unlikely.  The recession and cost-shifting to individuals have led to a deceleration in utilization, which is the primary source of the overall spending slowdown.  Unit prices for most categories increased much faster than utilization, especially per capita utilization.

By category, hospital spending increased to $814 billion, a growth rate of 4.9%, compared to 6.4% in 2009.  Private insurers paid for 35% of this care and saw spending growth of only 4.8%, while Medicare, accounting for 28% of hospital spending, saw a 4.6% increase and Medicaid, 19% of hospital spending, had an 11.2% increase.  Consumers either postponed or decided not to have certain hospital services, as admissions declined and ER and outpatient visits and outpatient surgeries slowed.  Overall physician spending was $515.5 billion, up 2.5% compared to 3.3% in 2009.  There was a drop in physician visits, accounting for most of the decline.  Private health plans pay 46% of doctor costs and their spending grew less than 1%.  Medicare’s physician service spending growth declined from 7.4% to 2.8%.  Out-of-pocket spending on physicians grew 3.2%.

Drug spending is 10% of the total and grew only 1.2%, driven by fewer prescriptions and more generic use.  Home health care spending grew relatively rapidly, 6.2%, compared to 7.5% in 2009, and totaled $70 billion.  Medicare and Medicaid are the large payers here and utilization is a more significant contributor to spending growth.  Nursing home care cost the country $143 billion in 2010 up 3.2%.  Overall, Medicare spending grew 5%, a prelude to the continuing burden on the national treasury as more and more people become eligible.  Fee-for-service Medicare accounted for all this growth, per capita expenditures for Medicare Advantage actually declined.  Medicaid spending also grew relatively rapidly, at 7.2% and also will accelerate in future years under current law.

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