Health Care Spending Slowed During Last Three Years

February 2, 2012

Health care spending saw historically low growth rates over the last three years according to data gathered by the Centers for Medicare & Medicaid Services (CMS) and Fitch Ratings.

Spending in 2009 and 2010 was analyzed by the CMS Office of the Actuary as part of the National Health Expenditure survey. The findings were summarized last month in the journal Health Affairs. 

The 3.8 percent increase in spending for 2009 was the lowest recorded in the 51-year history of the National Health Expenditure survey.   The increase for 2010 was just marginally higher, at 3.9 percent.

According to data compiled by Fitch, the rise in spending in 2011 was also 3.9 percent.

The slow rate of growth meant that health care spending as a share of the overall economy remained unchanged for the two years, hovering at 17.9 percent.

Growth in total private health care premiums also slowed, dropping from 2.6 percent in 2009 to 2.4 percent in 2010. That continued a trend that began in 2003. 

At the same time, however, the growth in premiums exceeded the growth in insurer spending on health care benefits, with the net cost of insurance increasing 8.4 percent in 2010.

CMS officials said that policy changes would continue to keep the growth in spending low.

 “We have worked hard since the passage of the Affordable Care Act in 2010 to lower health care cost growth,” said Marilyn Tavenner, acting CMS administrator. “We believe that the tools in health reform will help keep health care cost growth low while improving the value of care for consumers.”

The CMS study found that spending growth on retail prescription drugs slowed dramatically, from 5.1 percent in 2009 to 1.2 percent in 2010, the lowest rate of increase ever recorded. 

Medicaid spending, while increasing at a higher rate than overall health care spending, slowed from an increase of 8.9 percent in 2009 to 7.2 percent in 2010 in spite of additional Medicaid dollars paid to the states via the American Recovery & Reinvestment Act (ARRA.)

ARRA also had an impact on who funded health care. Spending by the federal government as a share of total spending increased from 23 percent in 2007 to 29 percent in 2010, while spending by state and local governments dropped from 18 percent to 16 percent over the same period.     

The enhanced Medicaid payments under ARRA expired in June 2011.

Despite the aging of baby boomers, Medicare spending growth slowed from 7 percent in 2009 to 5 percent the following year.    

Medicare spending grew 5.0 percent in 2010, a deceleration from growth of 7.0 percent in 2009.

 Hospital spending, which accounts for approximately 30 percent of total health care spending, also saw a slowdown in growth from 6.4 percent to 4.9.  

The NHE report projected that health care spending would see moderate growth as the economy improves, with a larger increase in 2014 from expanded Medicaid enrollment and availability of health coverage via health insurance exchanges, both required under the ACA. 

Increases beyond 2014 would be influenced by growth in the overall population, as well as aging of baby boomers.

Fitch predicted growth in spending would continue to be slow well beyond the end of the economic downturn, citing structural changes in the health care industry. 

Factors identified by the Fitch report as contributing to slower growth in spending included sequestration cuts to Medicare resulting from failure to address deficit reduction and reduced Medicaid spending by states.