U.S. Health Spending Growth Slowest in Nearly 50 Years

Jan. 5, 2010

Bethesda, MD – Amid one of the worst economic recessions in recent history, U.S. health spending grew 4.4 percent in 2008, its slowest rate in nearly 50 years.  However, overall health spending, which reached $2.3 trillion in 2008 —  $7,681 per person — still increased faster than the overall economy, federal analysts reported today in the January issue of the journal Health Affairs Health spending constituted 16.2 percent of the Gross Domestic Product (GDP), increasing from 15.9 percent the year before. 

The annual report on health spending is from the Centers for Medicare & Medicaid Services (CMS).  The 2008 growth rate CMS reported is the lowest rate of growth in health spending since the federal government started tracking the trend.  “Health care spending is usually somewhat insulated from the immediate impact of a downturn in the economy.  But this recession has exerted considerable influence on the health care sector,” says CMS statistician Micah Hartman, who co-authored the report with fellow economists Anne Martin, Olivia Nuccio and Aaron Catlin.

Their analysis examining private and public spending on hospitals, physicians, pharmaceuticals, and long term care facilities is part of the government’s annual snapshot of U.S. health spending trends reflecting the most current data available.  The data show a slowdown in health spending across the board – but at the same time, a shift in the composition of spending, including from private to public sources.

According to the report, spending growth slowed in 2008 for nearly all health care goods and services, particularly for hospital care. However, the share of federal revenue that funded health care grew significantly – to almost 36 percent, up considerably from 28 percent in 2007.  This was the highest level since 1987, when CMS’ Office of the Actuary began analyzing expenditures by type of sponsor.  The increased federal spending on health care was triggered by the American Recovery and Reinvestment Act of 2009 (ARRA), which temporarily shifted $7 billion in additional federal funds to Medicaid to help financially strapped states.  In addition, Medicare spending on hospital care grew faster in 2008 than in 2007 due in part to an increase in hospital admissions.

Medicare Hospital Spending and Medicare Advantage Spur Growth

Medicare spending reached $469.2 billion in 2008, growing 8.6 percent compared to 7.1 percent in 2007.  

Medicare spending growth was most significant in the hospital sector, where Medicare spending grew 7.7 percent compared to 4.7 percent in 2007, in part due to increased admissions.  Medicare spending also grew because more seniors enrolled in private Medicare Advantage plans. Enrollment in these plans grew 13.6 percent in 2008.  Medicare Advantage spending grew 21.3 percent in 2008, to $108.2 billion.   Medicare did see slower spending growth for fee for service prescription drugs, which increased 8.8 percent in 2008, slower than the 13.9 percent growth in 2007.

 Total Medicaid spending grew at its slowest rate since 1997 (with the exception of 2006, when the implementation of Medicare Part D transferred much of the prescription drug spending for the dually eligible population from Medicaid to Medicare).  Medicaid hospital spending, which accounts for 36 percent of total Medicaid, grew 2.7 percent, down from a 7.8 percent increase in 2007.  The slowdown was triggered by states cutting back because of budget shortfalls that resulted in reduced Medicaid payments to hospitals and other health care providers. Although spending growth slowed, enrollment in Medicaid grew 2.6 percent, up significantly from 0.7 percent in 2007, due to rising unemployment and loss of private health insurance. The federal portion of Medicaid spending did increase 8.4 percent – the highest rate of growth since 2003 – while state spending declined by 0.1 percent, which represents the first decline in program history. The difference is due “almost entirely” to the $7 billion in additional funds associated with the enhanced federal match under the ARRA.

Additional Highlights:

Out-of-pocket spending.  The recession spurred a marked drop in out-of-pocket spending growth for health care services, which rose 2.8 percent in 2008 compared to 6 percent in 2007, the lowest rate since the mid-1990s.  The report states that the slowdown may be due to consumers losing their jobs and their health insurance and having less disposable income.

Private health insurance.  Health insurance premiums and benefits grew in 2008 at the slowest rate since 1967, 3.1 percent and 3.9 percent, respectively.  The slowdown was tied to a drop in the number of people with private health insurance, which declined from 196.4 million in 2007 to 195.4 million in 2008.

Hospital Care.  Spending on hospital care reached $718.4 billion in 2008, growing 4.5 percent compared to 5.9 percent in 2007, the slowest rate since 1998.  A drop in hospital prices fueled the slowdown as well as a decline in Medicaid spending growth by states.  Hospitals also saw a 20.3 percent decline in other private revenues, due in part to investment income losses tied to the recession. This loss was partially offset by increased growth in use of both inpatient and outpatient hospital services and faster growth in Medicare spending on hospital care.  

Physician and Clinical Services.  Expenditures for physician and clinical services reached $496.2 billion, up 5 percent compared to 5.8 percent growth in 2007.  This was the slowest rate of growth since 1996. Slower growth in out of pocket payments, private health insurance spending, and physician prices contributed to the deceleration, while non-price factors such as the use and intensity of physician services grew 2 percent in 2008, slightly faster than in 2007. Although patient volume appears to be down, the intensity of physician services may be accelerating.

Prescription Drugs.  Retail prescription drug spending growth decelerated to 3.2 percent in 2008, reaching $234.1 billion and reflecting a slowing trend that began in 2000 (with the exception of accelerating growth in 2006, which was largely due to the implementation of Part D).  Prescription drug spending growth tied to use and intensity slowed in 2008. The recession, as well as safety concerns and fewer new product introductions contributed to lower prescription drug use per person.  Prescription drug prices increased 2.5 percent in 2008 compared to 1.4 percent in 2007. However, prescription drug prices are still rising slower than the 4.1 percent average annual rate of growth between 1997 and 2007.  

Long-term care. Spending on nursing home care reached $138.4 billion in 2008, decelerating from 5.8 percent growth in 2007 to 4.6 percent in 2008.  This was due in part to a slowdown in private spending growth for nursing home services and a deceleration in prices.  Meanwhile, public spending for nursing home services grew slightly faster as a result of faster Medicaid spending growth. Spending for home health care services also grew more slowly in 2008, decelerating to 9 percent from 11.8 percent in 2007 to reach $64.7 billion.  This was largely due to a deceleration in home health prices and slower growth in the use and intensity of services.


Sponsored Recommendations

Enhancing Remote Radiology: How Zero Trust Access Revolutionizes Healthcare Connectivity

This content details how a cloud-enabled zero trust architecture ensures high performance, compliance, and scalability, overcoming the limitations of traditional VPN solutions...

Spotlight on Artificial Intelligence

Unlock the potential of AI in our latest series. Discover how AI is revolutionizing clinical decision support, improving workflow efficiency, and transforming medical documentation...

Beyond the VPN: Zero Trust Access for a Healthcare Hybrid Work Environment

This whitepaper explores how a cloud-enabled zero trust architecture ensures secure, least privileged access to applications, meeting regulatory requirements and enhancing user...

Enhancing Remote Radiology: How Zero Trust Access Revolutionizes Healthcare Connectivity

This content details how a cloud-enabled zero trust architecture ensures high performance, compliance, and scalability, overcoming the limitations of traditional VPN solutions...