Recession drove down growth of healthcare spending for 2008

The recession slowed the growth in healthcare spending to its lowest rate in nearly 50 years in 2008, though it continued to climb and consume a record share of the economy, according to federal auditors.

At the same time, the troubled economy proved a major factor in the federal government’s share of healthcare spending growing faster and consuming a larger share of the federal budget.

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In 2008, national health expenditures reached $2.3 trillion, a 4.4 percent increase, compared to the 6 percent increase in 2007, according to a report from the Office of the Actuary at the Centers for Medicare and Medicaid Services (CMS) published Tuesday on the website of the journal Health Affairs.

The 2008 growth figure is the lowest since CMS began tracking national health spending in 1960.

“The current economic recession appears to have exerted considerable influence on the healthcare sector in 2008,” the report concludes.

The economy as a whole grew more slowly in 2008, which was a major factor in the smaller growth in healthcare spending. Healthcare expenditures, however, continued to grow faster than the gross domestic product (GDP). Despite this slower rate of growth, healthcare spending still increased as a share of GDP from 15.9 percent to 16.2.

The report indicates that the slowing in spending is likely to be short-lived and will increase when the economy recovers and, thus, does not indicate a positive trend in national healthcare spending.

“Despite the overall slowdown in national health spending growth, increases continue to outpace growth in the ability to pay for it,” the report says. The CMS auditors will offer a preliminary analysis of 2009 in a separate report slated for a February release.

Federal spending on healthcare grew 10.4 percent in 2008, an increase from the 6.6 percent rise in 2007.

Federal spending through Medicare, Medicaid, the Federal Employees Health Benefits Program and other programs accounted for 35 percent of all national health expenditures in 2008, a one percentage point increase. In addition, healthcare spending consumed 36 percent of the federal budget in 2008, compared to 28 percent in 2007.

Healthcare spending constituted a larger share of the federal budget in large part because tax revenues were down in 2008 due to the recession. In addition, the economic stimulus bill passed in February 2009 retroactively increased federal spending on Medicaid and decreased the states’ share of the program’s expenses.

The effects of the recession on American businesses and on the pocketbooks of consumers contributed to the slower rate of growth, the CMS actuaries conclude. Lost jobs, lost health insurance and lower wages led to a decrease in the rate of healthcare spending by employers and patients.

Health insurance enrollment decreased from 196.4 million to 195.45 million in 2008, partly because of lost construction and financial-services jobs. The cost of premiums and the value of benefits increased by 3.1 percent and 3.9 percent, respectively, which the report notes are the lowest for both factors since 1967 and are directly related to the decline in enrollment.

Employer spending on health benefits rose 1.2 percent in 2008, down from 3.7 percent the prior year.

Household spending on healthcare grew by 4.3 percent in 2008 compared to 5.9 percent in 2007. The cost of employees’ share of health benefits rose at the same rate in both years, 5.4 percent, but the increase in household spending on other healthcare expenses declined. A decline in income caused slower rates of increase in the collection of Medicare payroll taxes, from 6.5 percent to 5.3.

Likewise, patients’ out-of-pocket spending on healthcare grew much more slowly: 2.8 percent in 2008, down from 6 percent in 2007. “In 2008, people may have foregone some medical treatment — particularly those who lost health insurance as a result of unemployment,” the report says.

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Hospitals, physicians, drug companies and other healthcare providers felt the pinch as the growth in spending on the goods and services they provide declined in 2008.

Spending on hospital services grew 4.5 percent to $718.4 billion; hospital spending rose 5.9 percent the previous year. Not only did the prices of hospital services rise more slowly, but the sector suffered losses in investment income due to declines in share value.

Physician and related spending in 2008 totaled $496.2 billion, a 5 percent increase, compared to 5.8 percent in 2007 and the slowest rate in 12 years. A slower rate of price increases was partially offset by increases in the utilization and intensity of physician services.