Health Care Costs Keep on Rising

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The Centers for Medicare and Medicaid Services (CMS) published the 2010 national health expenditure numbers – with spending projections through 2019.   The email announcing this article from Health Affairs screamed “U.S 2009 Health Spending Projection -- largest increase in 40 years.”  That’s a true statement –but it’s a little more complicated.

Health care expenditures went up by 5.7% last year –more than the 4.4% from the year before, but well under the double digit increases from the last decade. However, the economy as a whole contracted by 1.1%.  This means that health care inflation is even more ‘out of balance’ with overall inflation – and health care will have represented an estimated 17.3% of the GDP in 2009.

High points from my perspective:

  • There was more growth in public programs compared to privately-funded health care – as the recession has left more people without employer-sponsored health insurance and eligible for government programs.   This understates the government’s role –since subsidy for COBRA payments for recently uninsured count as private insurance spending..
  • Medicare spending will only grow 1.5% in 2010 assuming that the SGR 21% physician pay cut was implemented in January. It’s already been delayed until March, and such a draconian cut is highly unlikely.  If the pay cut is not implemented, Medicare costs will swell by 5.1%.  In fact the SGR reversal would result in an increase in overall health care inflation of 0.8%.   It’s going to be hard to reverse this and pay for it without cuts somewhere else or new taxes or fees.
  • The CMS Actuary predicts that health care spending will increase after 2010 “primarily (as) a result of expected faster growth in disposable personal income associated with the economic recovery.”  This is a window into the CMS Actuaries assumptions.  Barring health care reform, overall economic growth leads to disproportionate increased spending on health care.   Economic doldrums could help avert health care inflation – but at a terrible price
  • Drivers of heath care inflation are primarily increased cost per unit and increased utilization. Both population growth and ageing of the population are responsible for much smaller effects.
  • Total costs were 2.24 trillion in 2007, and will more than double (4.83 trillion) by 2019, by which time health care will represent 19.3% of the GDP
  • The government share of health care costs will exceed 50% over the next decade. Of course, if you count the tax subsidy for employer-sponsored health insurance, government already pays for more than half of all health care.

The impact of health care cost inflation on the overall economy, and on the federal debt, is huge. We’ll see how (if) this new data helps energize the effort to pass health care reform (and especially to cut future Medicare growth rate).