Health spending up, but % of GDP falls

Jan. 8, 2014

The percentage of the overall economy devoted to health spending fell slightly in 2012 — from 17.3% in 2011 to 17.2% — even as healthcare continued its trend of slow growth, government economists said Monday.

It was the first time the percentage of gross domestic spending on healthcare has fallen since 1997, the Centers for Medicare and Medicaid Services (CMS) Office of the Actuary said Monday in its annual health spending report.

Overall, national health spending increased by 3.7% in 2012 — roughly the same as the 3.8% to 3.6% spending growth experienced annually between 2009 and 2011, according to the CMS report published Monday in Health Affairs. All 4 years have been the slowest rates ever recorded in the 53-year history of CMS' National Health Expenditure Accounts report.

The health sector benefited from a change in the way the Commerce Department calculates the country's gross domestic product (GDP) which added several hundred billion dollars to overall spending, none of which involved healthcare. The result was that healthcare's overall contribution to GDP dropped — even as the amount spent on healthcare nationally rose.

While the overall economy may have recovered from the Great Recession and inflation has picked back up, the recession's effects on healthcare are lagging about 2 to 3 years behind, CMS said. And 2012 is no different, as the recession's effects are still playing out.

“The reason that happens is it takes several years for the recessionary effects to work their way through the health sector,” Aaron Catlin, deputy director of the National Health Statistics Group at CMS' Office of the Actuary, said at a media briefing Monday. “What we're saying in the report is that the slow growth that we've seen in the last few years is consistent with the historical trend.”

The same economists had a more difficult time estimating if the slowdown in spending was here to stay or if a boom in spending was expected again once the economy fully shakes off the recession's effects.

In the Health Affairs paper, CMS officials wrote that “more historical evidence is needed before concluding that we have observed a structural break in the historical relationship between the health sector and the overall economy.”

Anne Martin, economist in the CMS Office of the Actuary, said Monday, “We see no evidence that the cycle has been broken.”

However, a different CMS report issued this fall predicted that healthcare spending will jump again in 2014 as coverage expansions of the Affordable Care Act (ACA) take root. The current report noted that the ACA — widely praised by the Obama administration as a reason for the historically slow spending growth — actually contributed a tenth of a percentage point increase in health spending between 2010 and 2012.

Spending on physician and clinical services continued to fare better than other services, growing at 4.6% in 2012. The sector also grew at 4.1% in 2011, outpacing overall spending that year as well.

The increased use of physician services, along with more expensive services and higher out-of-pocket spending, contributed to the rise in spending in the sector. “As the economy continued to recover from the recent severe economic recession, consumers resumed spending on medical care they may have postponed during the recession,” Martin said.

Clinical services such as urgent care centers also helped spur growth in this area, CMS said.

Martin — as with forecasts for overall health spending — had a hard time predicting if physician services would continue to increase at rates faster than overall health spending.

Hospital spending also saw a great year in 2012 as it grew by 4.9% — a large jump over the 3.5% increase the sector saw in 2011. The faster growth was driven largely by increased spending by Medicare, Medicaid, and private insurers.

Medicare spending increased by 4.8% as the number of Medicare beneficiaries increased by 4.1% in 2012, when baby boomers began entering into the program. Medicaid spending jumped by 3.3% in 2012, following a slow growth year of 2.4% in 2011.

However, prescription drug spending increased by a mere 0.4% as major blockbuster drugs such as atorvastatin (Lipitor), clopidogrel (Plavix), and montelukast (Singulair) became available in generic form.

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