Wednesday, February 25, 2009

Health Spending on the Rise

CMS economists discussed the projections for future health spending at a briefing held at the National Press Club on February 23rd. As reported by the economists in a “Health Affairs” study, U.S healthcare spending reached $2.4 trillion in 2008 and is projected to experience the largest single-year increase as a share of the economy in 2009.

The CMS analysts agreed that by 2018, national health spending is projected to nearly double, reaching $4.4 trillion and consume 20.3 percent of the GDP. Just over 20 cents out of every dollar is expected to be spent on healthcare by 2018.

The ten year healthcare spending projections show how the economic downturn is expected to affect both public and private healthcare spending as more Americans lose their health insurance and as federal and state governments face projected increases in Medicaid enrollment and spending.

“The recession has wide-reaching implications for the healthcare sector and policymakers and the public will be faced with tough decisions regarding the future of the healthcare system,” said CMS economist Andrea Sisko.

Projected slower income growth and an expected decline in private health insurance coverage are expected to dampen growth in private health spending, which is expected to fall to a 15 year low of 3.9 percent in 2009. At the same time, growth in health spending among public payers is predicted to accelerate from 6.4 percent in 2007, or $1.0 trillion in spending to 7.4 percent, or $1.2 trillion in spending by 2009, driven by faster growth in Medicaid enrollment and spending.

Medicare spending reached $466 billion in 2008, an increase of 8.1 percent from 2007. This is driven largely by projected faster growth in spending for prescription drugs, hospital and physician care, and administrative costs. As the baby boomer generation becomes eligible for Medicare, spending is expected to accelerate, growing 8.6 percent by 2018.

Other key report highlights show that between 2014 and 2018, prescription drug spending growth is expected to rebound, as the generic dispensing rate is anticipated to level off and new expensive specialty drugs may be approved. By 2018, prescription spending is projected to reach $453.7 billion.

By 2018, total hospital spending is expected to reach nearly $1.4 trillion up from a projected $746.4 billion in 2008. The growth in hospital spending is expected to slow from 7.2 percent in 2008 to 5.7 percent in 2009, as a result of slower private spending growth for hospital care.

Growth in total physician and clinical services is expected to continue slowing between 2008 and 2009 from 6.2 percent to 6.0 percent. This slowdown is largely due to slower physician price growth and slower projected income growth.

In addition, another study available on the Health Affairs web site provides annual estimates of national personal health spending by medical conditions. The study reports that circulatory system spending was the highest among the diagnostic categories, accounting for 17 percent of personal health spending and reached $253.9 billion in 2005. Nearly half of circulatory system spending is attributable to heart conditions.

The CMS healthcare facts and figures are available in published studies now on the “Health Affairs” web site at