US health spending grew to $2.3 trillion in 2008

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WASHINGTON (AP) — The recession dramatically slowed U.S. health care spending to $2.3 trillion in 2008, but it still grew much faster than the economy as a whole, accounting for more than 16 percent of the nation’s economic output, says a new federal analysis.

The eye-popping figure of $2.3 trillion — that’s $7,681 per person — underscores the challenges confronting President Barack Obama and lawmakers seeking to overhaul the system. Obama has repeatedly cited spiraling health costs as one of the main reasons Congress needs to pass his health plan, and administration officials said the findings highlighted the need for quick action.

“This report contains some welcome news and yet another warning sign,” said Jonathan Blum, a top official at the government’s Centers for Medicare and Medicaid Services. “Health care spending as a percentage of GDP (gross domestic product) is rising at an unsustainable rate. It is clear that we need health insurance reform now.”

However, health care experts question whether there are significant cost-containment measures in the legislation passed by House and Senate Democrats before Christmas — and Republicans insist there aren’t. The new report could provide fodder for both sides as lawmakers work to reconcile the House and Senate legislation into a final bill in coming weeks.

“I agree we need reform, but both the House and Senate Democrat bills make the problem worse by increasing the cost of health care,” said Rep. Dave Camp of Michigan, top Republican on the House Ways and Means Committee. “They spend $1 trillion we don’t have and bend the curve the wrong way.”

Republicans cited earlier analyses by the Centers for Medicare and Medicaid that found the sweeping overhaul legislation that seeks to extend coverage to more than 30 million uninsured Americans over the next decade would lead to increased health care costs. Democrats counter that the bills begin to slow cost increases over time.

However, some cost-saving measures Democrats proposed were blocked or turned into pilot projects after lobbying by doctors, hospitals or other interest groups. One major attempt to bring down health costs is a tax on high-value insurance plans included in the Senate bill but opposed in the House; it’s likely to survive in some form though exactly how remains to be seen.

The new analysis by economists at the Centers for Medicare and Medicaid appears Tuesday in the journal Health Affairs. It found that total national health spending grew 4.4 percent in 2008, the slowest rate of increase since CMS began tracking health spending in 1960. By contrast, the growth rate in 2007 was 6 percent. The study seeks to measure all public and private health expenditures.

Still, the growth of health costs was higher than the overall growth in gross domestic product, which stood at 2.6 percent in 2008 before adjusting for inflation.

Health spending reached 16.2 percent of the gross domestic product in 2008, up from 15.9 percent in 2007. That added up to $2.3 trillion and far higher per-person expenditures than other industrialized countries, although the higher spending is generally not matched by better health outcomes, studies have found.

Even with the high spending, the recession made itself felt throughout the health care sector in 2008, with slowdowns in out-of-pocket spending, private insurance premiums and hospital spending — the latter largely because of loss of revenue from hospitals’ investment incomes.

The slowdown in health insurance premium costs might seem counterintuitive, given the complaints of increased health care costs coming from individuals and businesses large and small. Part of the reason is because of the jobs lost in the recession, forcing people off the insurance roles and shrinking the overall cost of premiums nationally. Enrollment in private health insurance declined from 196.4 million in 2007 to 195.4 million in 2008, the report said.

“Health care spending is usually somewhat insulated from the immediate impact of a downturn in the economy. But this recession has exerted considerable influence on the health care sector,” said CMS statistician Micah Hartman, a lead author on the report.

Medicare, the federal health insurance program for people 65 and older, was the only area where the rate of spending growth in 2008 was greater than in 2007. That’s partly because Medicare recipients are largely out of the workforce and therefore more insulated from the recession. Medicare hospital spending grew, and more patients shifted into privately run Medicare Advantage plans, which offer better benefits than traditional fee-for-service Medicare but also cost the government more.

The recession also had the effect of shifting a greater share of health spending onto the federal government as the passage of the economic stimulus bill last year sent billions to states to help them with their share of Medicaid costs, including some retroactive costs. Medicaid enrollment in 2008 rose along with unemployment, but overall spending on Medicaid services slowed anyway as cash-strapped states scrimped on costs.