The Centers for Medicare and Medicaid Services’ Office of the Actuary (CMS/OACT) has released its projections of U.S. health care spending for the ten years 2010 through 2019, with premliminary estimates of 2009 health spending. The projections, released each year around this time, offer a fascinating, detailed look at patterns and trends in public and private health spending across programs and provider types.

Health Care Spending in 2009:

In 2009, National Health Expenditures (NHE) is projected to have reached $2.5 trillion, up 5.7 percent from 2008. This compares to 1.1 percent GDP decline in 2009. Health spending grew by a slow rate of 4.4 percent in 2008.

The health care share of GDP is expected to jump from 16.2 percent of GDP in 2008 to 17.3 percent in 2009 – the largest one-year increase in history.

  • National health spending accelerated in 2009 due to several factors, notably:
  • Fast grow in Medicaid, driven by higher enrollment in the recession. Medicaid grew by 9.9 percent in 2009, compared to the 4.7 percent increase in 2008.
  • Medicare spending growth of 8.1 percent.
  • Higher utilization of services by consumers seeking treatment for the H1N1 virus.
  • Increased take-up rate for COBRA coverage due to federal subsidies of COBRA premiums.

Medicare, Medicaid, and Private Health Insurance in 2009:

In 2009, Medicare was projected at $507.1 billion, a 8.1 percent increase over 2008. Medicaid spending is estimated at $378.3 billion (federal and state funds), an increase of 9.9 percent.

The fast grow in Medicare and Medicare compares to continued slow growth in spending on private health insurance premiums, again largely due to the poor economy and unemployment. CMS projects spending on private health insurance premiums at $808.7 billion in 2009, up 3.3 percent from 2008.

Hospital, Physician, and Prescription Drug Spending in 2009:

Estimating Health Spending.jpgIn 2009, hospital spending increased by 5.9 percent to $760.6 billion (inpatient and outpatient). Physician and clinical services spending is expected to have reached $527.6 billion or a 6.3 percent increase in 2009. Note that in 2008 hospital and physician spending increased at more moderate rates of 4.5 percent and 5.0 percent, respectively.

Prescription drug spending increased by an estimated 5.2 percent, for total of $246.3 billion in 2009. Part of this increase was driven by higher use of antiviral drugs. Political perceptions and grandstanding notwithstanding, drug spending continues to grow more slowly than other, much larger components of health spending and has declined as a proportion of total health costs.

Projected Health Care Spending in 2010:

Assuming that Congress stops the 21.3 percent cut in Medicare physician payment rates required under the Sustainable Growth Rate (SGR) provisions of current law, total U.S. health care spending is projected to increase by 4.7 percent in 2010. If Congress fails to stop the physician rate cuts, overall NEHs would grow by a more modest 3.9 percent. Fixing SGR could easily cost over $300 billion but a fix is likely, especially given the enormity of the cuts and fact this is an election year.

Private health care spending in 2010 is projected to grow by 2.8 percent because of declining private health insurance enrollment because of high unemployment and the expiration of federal subsidies for COBRA coverage.

Out-of-pocket spending is expected to have slowed from 2.8 percent in 2008 to 2.1 percent in 2009, reaching $283.5 billion in 2009. The recession slowed the ultization of medical services, thereby slowing growth in out-of-pocket spending on co-payments and deductibles.

Ten Year Projection Through 2019:

For 2010 through 2019, the CMS team of actuaries and economists project:

  • Overall national health spending will grow by average annual rate of 6.1 percent (compared to projected GDP growth of 4.4 percent annually).
  • Medicare spending will grow at average annual rate of 6.9 percent.
  • Medicaid spending will grow at average annual rate of 7.5 percent.
  • Out-of-pocket spending will grow by an average 4.8 percent per year.
  • Hospital spending will increase by an average 6.1 percent per year.
  • Physician and related clinical spending will grow by average annual rate of 5.9 percent.
  • Perscription drug spending will grow by average 6.3 percent per year.

Not surprisingly, public sector spending on health care is projected grow faster on average than private spending for 2009 through 2019. Average annual growth rate of 7.0 percent for taxpayer financed health care versus 5.2 percent for private spending (by employers and individuals).

Public health care programs (Medicare, Medicaid, CHIP, VA, TRICARE, et al) will account for half of all health spending by 2012.

By 2019, CMS Office of the Actuary projects that U.S. health spending will reach $4.5 trillion or about 19.3% of the economy as measured by GDP. (Yikes!)

Learn More About Health Spending Projections:

The CMS Office of the Actuary projections for U.S. health spending are nicely summarized in a new article in Health Affairs. To read the article, click here (PDF).

To learn more, check out CMS’ projections, historical tables, and methodology here.