Healthcare Spending Growth Slowed in 2008, But Still Outpaced GDP, Says CMS

Healthcare spending in the United States grew 4.4% in 2008, to $2.3 trillion or $7,681 per person, the slowest rate of growth since the federal government started officially tracking expenditures in 1960, CMS reported this week.

Even with the slower growth, however, healthcare spending continued to outpace overall economic growth, which grew by 2.6% in 2008 as measured by the Gross Domestic Product. The findings are included in a report by CMS' Office of the Actuary.

"This report contains some welcome news and yet another warning sign," said Jonathan Blum, director of CMS' Center for Medicare Management. "Healthcare spending as a percentage of GDP is rising at an unsustainable rate. It is clear that we need health insurance reform now."

The 4.4% growth in 2008 was down from 6% in 2007 as spending slowed for nearly all healthcare goods and services, particularly for hospitals, CMS said.

Healthcare spending as a share of the nation's GDP continued to climb, reaching 16.2% in 2008, up 0.3% from 2007. Larger increases in the health spending share of GDP generally occur during or just after recessions, CMS said.

The recession significantly impacted health spending as more broke or jobless Americans went without care. This led to slower growth in personal healthcare paid by private sources, which increased only 2.8% in 2008. The recession also made it difficult for many Americans to afford private health insurance, so the growth in private health insurance benefit spending slowed to 3.9% in 2008, CMS said.

Health spending was also impacted by the $787 billion American Recovery and Reinvestment Act of 2009, which provided a temporary 27-month increase in Federal Medical Assistance Percentages used to determine the federal Medicaid payments to states. The legislation shifted about $7 billion of Medicaid spending from states to the federal government for the last quarter of 2008, CMS said.

Other statistics on the growth of healthcare spending in the new report include:

• Hospital spending in 2008 grew 4.5% to $718.4 billion, compared to 5.9% in 2007, the slowest rate of increase since 1998.
• Physician and clinical services' spending increased 5% in 2008, a deceleration from 5.8% in 2007.
• Retail prescription drug spending growth also decelerated to 3.2% in 2008 as per capita use of prescription medications declined slightly, mainly due to impacts of the recession, a low number of new product introductions, and safety and efficacy concerns.
• Spending growth for both nursing home and home health services decelerated in 2008. For nursing homes, spending grew 4.6% in 2008 compared to 5.8% in 2007.
• Total healthcare spending by public programs, such as Medicare/Medicaid, grew 6.5% in 2008, the same rate as in 2007.
• Healthcare spending by private sources of funds grew only 2.6% in 2008 compared to 5.6% in 2007.
• Private health insurance premiums grew 3.1% in 2008, a deceleration from 4.4% in 2007.