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GROWTH IN NATIONAL HEALTH EXPENDITURES EXPECTED TO SLOW BY 2009 AS A RESULT OF RECESSION

GROWTH IN NATIONAL HEALTH EXPENDITURES EXPECTED TO SLOW BY 2009 AS A RESULT OF RECESSION
BUT HEALTH TO CONTINUE GROWING AS SHARE OF ECONOMY

Growth in national health expenditures (NHE) in the United States  is expected to significantly outpace economic growth in 2008 and 2009 due to the recession, according to a report issued today by the Centers for Medicare & Medicaid Services (CMS).  The report was prepared by CMS’s Office of the Actuary and published online by the journal Health Affairs.

In 2008, growth in national health expenditures is expected to be 6.1 percent, as health spending increases from $2.2 trillion in 2007 to $2.4 trillion in 2008, while growth in the economy, as measured by the gross domestic product (GDP) is anticipated to be 3.5 percent.   For 2009, health spending is projected to increase 5.5 percent while GDP is expected to decrease 0.2 percent.  The health share of GDP is expected to increase from 16.2 percent in 2007 to 16.6 percent in 2008 and to 17.6 percent in 2009.  This represents about one-third of the total increase in the health share of GDP for 2008 through 2018. 

Over the period 2008-2018, average annual health spending growth (6.2 percent) is anticipated to outpace average annual growth in the overall economy (4.1 percent).    By 2018, national health spending is expected to reach $4.4 trillion and comprise just over one-fifth (20.3 percent) of GDP.

Over the projection period, average annual spending growth by public payers (7.2 percent) is expected to outpace that of private payers (5.3 percent).   As a result, the public share of total health care spending is expected to rise from 46.2 percent in 2007 to over 50 percent by 2016, and then reach 51.3 percent by 2018.

Private health spending growth, which includes growth in private health insurance spending and out of pocket payments, is projected to decelerate from 5.8 percent in 2007 to 5.3 percent in 2008. It is then projected to reach a 15-year low of 3.9 percent by 2009, driven by expected slower income growth and a decline in the number of people covered by private health insurance.

Related to projected faster growth in Medicaid enrollment and expenditures, public spending growth on health care is projected to accelerate from 6.4 percent in 2007 to 7.0 percent in 2008 and to 7.4 percent by 2009.

Hospital spending growth is expected to edge downward from 7.3 percent in 2007 to 7.2 percent in 2008, and then decelerate further in 2009 to 5.7 percent.   Driving the expected deceleration in hospital spending growth is projected slowing growth in use associated with the recession and projected slower income growth.  In addition, hospital price growth is expected to decelerate to the slowest rates since 2000 (2.9 percent in 2008 and 2.6 percent in 2009), also associated with the effects of the recession.

Prescription drug spending growth is projected to slow to 3.5 percent in 2008, down from 4.9 percent in 2007, as many consumers fill fewer prescriptions or become more willing to switch to lower-cost generic drugs in response to projected slower income growth associated with the recession.   Prescription drug spending growth is expected to rebound to 4.0 percent in 2009 as projected double-digit accelerations in Medicare and Medicaid growth more than offset a continuing recession-related deceleration in private prescription drug spending growth.

Within Medicare, prescription drugs are projected to be the fastest growing component of the program’s spending over the projection period, with the prescription drug share of Medicare spending increasing from 10.9 percent in 2007 to 14.7 percent by 2018.

Physician and clinical services spending is expected to grow 6.2 percent in 2008, compared with the 6.5 percent growth experienced in 2007.   In 2009, physician and clinical spending is projected to grow at 6 percent.

In 2010, growth in national health expenditures is projected to decelerate to 4.6 percent, down from 5.5 in 2009.   This trend is largely attributable to a projected decline in Medicare spending growth (8.0 percent in 2009 to 2.5 percent in 2010) due principally to a 21-percent cut to Medicare physician payment rates required under the Sustainable Growth Rate (SGR) formula called for in 2010 under current law.  We note, however, that in every year since 2002, Congress has acted to override application of the SGR formula to reduce physician payments.  If Medicare physician payment rates are not cut in 2010 and remained at 2009 levels, projected Medicare spending growth in 2010 would be 6.4 percent, 3.9 percentage points faster than the current-law projection of 2.5 percent. And projected total growth in national health expenditures would be 5.4 percent in 2010, 0.8 percentage point higher than the current-law projection of 4.6 percent.

Growth in national health expenditures is anticipated to begin accelerating in 2011 under current law and eventually reach 7.2 percent by 2018.   Based on a projected economic recovery beginning in 2010, private health spending growth is expected to rebound from 4.2 percent in 2010 to 6.1 percent by 2018.  Public spending growth is also projected to accelerate, from 5 percent in 2010 to 8.2 percent in 2018, in large part due to baby boomers becoming eligible for Medicare.  Medicare spending growth is projected to accelerate from 6.2 percent in 2011 to 8.6 percent by 2018.

Medicaid spending growth is expected to slow from 9.6 percent in 2009 to 7.8 percent in 2012 due to projected improving economic conditions.   However, as the relatively expensive aged and disabled eligibility groups comprise a larger share of total Medicaid enrollment through 2018, spending growth is expected to accelerate to 8.9 percent by the end of the coming decade.

The health care spending projection data can be found on the CMS Web site at http://www.cms.hhs.gov/NationalHealthExpendData/03_NationalHealthAccountsProjected.asp.

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