2009 HEALTH SPENDING REPORT RELEASED—AND OPEN TO INTERPRETATION

The New York Times headline was “Health Spending Rose in ’09, but at Low Rate,” but it could just as appropriately have been “Health Spending in ’09 Took Biggest Jump Ever in GDP Share.”

The computers in the CMS Office of the Actuary have finally quit grinding away and disgorged their findings for US health care spending for 2009. Total spending did rise at the lowest rate in fifty years—just 4 percent over 2008—but health care’s share of the economy jumped from 16.6 percent to 17.6 percent—the highest rate of increase in fifty years—as the economy shrank. In other terms, 2009 saw US health care cross another half-trillion dollar threshold—to $2.5 trillion for total expenditures—and pass yet another thousand dollar per capita marker—to just over $8,000 a head.

As the economy started to emerge from the recession, federal spending on health care accelerated, but many individuals deferred or declined medical care. Medicare expenditures rose to $502 billion, an increase of almost 8 percent, while Medicaid expenditures jumped to $374 billion, an increase of 9 percent, fueled by a 22 percent increase in federal support that was only partially offset by a drop of 10 percent in state funding. In comparison, in the private insurance sector, total premium dollars paid increased by just 1.3 percent to $801 billion, with an average premium increase of 4.6 percent.

In terms of population, Medicare enrollment rose by about 2 percent to 46.5 million, Medicaid enrollment rose by 8.3 percent to 48.6 million, and private insurance enrollment fell by more than 6 million—3.2 percent—to around 197 million.

What does this imply for the next two to three years, until the scheduled 2014 date for full implementation of health care reform? Will we revert to pre-recession increases in expenditures?

It seems highly possible.

Assuming the current economic pattern of a very slow recovery from the recession, enrollment increases in Medicaid and decreases in private insurance should indeed return to earlier trends—close to stable for Medicaid and a slow erosion for private insurance—while Medicare enrollment will continue to grow with the number of older Americans.

In terms of expenditures, a slowly improving economy may result in more use of medical services as some families have more household income while others who deferred care in 2008-2010 now find it necessary. Providers and insurers may be tempted to build “war chests” in anticipation of the impacts of reform, with Medicare spending in particular jumping ahead of the uncertain potential impacts of the Independent Payment Advisory Board and accountable care organizations, as well as reductions in Medicare Advantage spending. Even ahead of 2014’s big expansion, Medicaid will continue to grow, with some possible face-offs over funding between the federal government and those states in the most serious financial straits. The one area of slight statistical improvement is likely to be in health care’s share of GDP, with the annual increases back below half a percentage point—but still pushing health care rapidly towards a fifth of the economy, and with an even bigger increase expected with reform implementation in 2014.