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Health Care Spending Slowed in 2010

POSTED: January 10, 2012, 12:00 am

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National health care spending grew slowly for the second consecutive year in 2010, bringing it in line with growth in the U.S. economy, the Department of Health and Human Services reported Monday.

Spending grew by 3.9 percent in 2010, to $2.6 trillion, while the gross domestic product increased 4.2 percent, according to the agency, which published its findings in the journal Health Affairs. In 2009 spending increased 3.8 percent. By contrast, in 2007, it grew by 7.6 percent. Spending increases sometimes reached double digits in the 1980s and 1990s.

While spending growth overall remained slow, for the first time in seven years premiums for people in private insurance plans grew faster than what was spent on their care, according to the Centers for Medicare and Medicaid Services. Premiums in 2010 rose 2.4 percent, slightly lower than the 2.6 percent increase in 2009. But private health insurers’ spending on actual benefits rose only 1.6 percent in 2010. That’s down from 3.7 percent in 2009.

The recession had a lot to do with the trend, CMS officials said. With fewer people insured, and private insurers generally picking up less of the cost, patients went to the doctor and hospital less.

Karen Ignagni, president of America’s Health Insurance Plans, said that the portion of premiums “allocated to health plans administrative costs was among the lowest in recent years, despite the fact that health plans have been incurring new compliance and regulatory costs related to the health care reform law.”

Spending on prescription drugs also declined in 2010. Not only did individuals buy fewer drugs, but there were also more switches from brand to lower-cost generic medications. Moreover, CMS noted that fewer new drugs came onto the market.

Two health care analysts, however, said that the explanation may go beyond the recession. “The utilization slowdown is at least in part structural, and not just cyclically driven by the economy, and the adoption of higher cost sharing plan designs will result in some level of permanent slowdown in trend,” said Ana Gupte, a senior analyst at Sanford Bernstein, which conducts research for investors.

Tom Miller, resident fellow at the American Enterprise Institute, said that the trend is worth watching since it has continued more than a couple of years. “We may have broken the old dynamic, where there’s an ingrained force that says we will spend more on health care than we do on other things,” he said.

As in other areas of the economy, he said, people are checking their spending on health care because they are faced with paying a greater share of the cost. “This is more in balance with how we’ve pulled back on consumption spending in other areas. Even this last remaining holdout has begun to buckle, and it’s been enough years to say the basic forces are changing.”

At the same time, there has been a shift in health care spending from the private sector and the states to the federal government. The federal government’s share of total national health care spending increased from 23 to 29 percent between 2007 and 2010. Over the same time, business’ share of health care spending decreased from 23 percent to 21 percent, and spending by state and local governments declined from 18 percent to 16 percent.

Again, CMS officials cite the recession; the federal government gave states extra help to get Medicaid coverage to more uninsured people. The federal government matches state spending on Medicaid, and, during the recession, it stepped up its contributions. Still, total spending on Medicaid increased 7.2 percent in 2010, which is down from 8.9 percent growth in 2009.

Medicare spending grew 5 percent, which is slower than the 7 percent growth the year before. The main reason, according to CMS, was that the health law required the federal government to decrease payments to Medicare Advantage plans. About a quarter of Medicare beneficiaries are enrolled in these private insurance plans, and Medicare had been paying about 14 percent more for people in these plans than in the traditional fee-for-service program. The health law aims to equalize what the federal government pays for beneficiaries in both programs.

As a result of the change, says Anne Martin, a CMS economist, enrollment in Medicare Advantage plans increased more slowly in 2010, as beneficiaries instead chose traditional Medicare, reversing a long-time trend. Following several years of declines, enrollment in fee-for-service increased 1.5 percent, marking the highest growth rate since 2004. Enrollment in Medicare Advantage, meanwhile, increased 5.6 percent in 2010, much less than the 10.5 percent growth in 2009.

Gupte, though, says that Medicare Advantage enrollment growth has increased since then.

This article was reprinted from with permission from the Henry J. Kaiser Family Foundation. Kaiser Health News, an editorially independent news service, is a program of the Kaiser Family Foundation, a nonpartisan health care policy research organization unaffiliated with Kaiser Permanente.

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