Healthcare spending nationally grew slowly for the second successive year in 2010, bringing it in line with growth in the U.S. economy as a whole, according to the Department of Health and Human Services (HHS). Spending rose by 3.9 percent in 2010, to $2.6 trillion, while the GDP rose 4.2 percent, according to HHS, which published its findings in the journal Health Affairs. In 2009, spending increased nearly the same by 3.8 percent, but in contrast it’s growth rate was twice that by 7.6 percent in 2007. Spending increases frequently hit double digits in the 1980s and 1990s. While spending growth in general remained slow, premiums for people in private insurance plans grew faster for the first time in seven years than what was spent on their care, according to the Centers for Medicare and Medicaid Services (CMS). Premiums in 2010 rose 2.4 percent, slightly less than the 2.6 percent increase in 2009, although private health insurers’ spending on actual benefits rose only 1.6 percent in 2010, down from 3.7 percent in 2009.
Healthcare represents 17.9 percent of the U.S. economy, the same proportion as in 2009, according to a government report. “Persistently high unemployment, continued loss of private health insurance coverage and increased cost sharing led some people to forgo care or seek less costly alternatives than they would have otherwise used,” the report said.
The report showed that the federal government paid 29 percent of the nation’s healthcare bill in 2010, up from 23 percent in 2007. Some of that increase reflects a transitory increase in federal aid to states to enroll more uninsured people in Medicaid. The percentage of spending by private businesses and state and local governments fell.
The recession played a large role in impacting spending, CMS officials said. Because fewer people were insured, and private insurers generally picked up less of the cost, patients went to the doctor and hospital less frequently. The answer 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.
“Premiums grew faster than benefits for the first time in seven years, and benefits grew at their slowest rate in the history of the accounts, according to Anne Martin, a CMS economist. Martin said this was because private health insurance companies lost enrollees as people were laid off, moved to cheaper health insurance plans as a result, cost-sharing increased.
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 in compliance with the healthcare reform law.”
Additionally, spending on prescription drugs declined in 2010. Not only did individuals buy fewer drugs, but there were also more switches from brand to lower-cost generic medications. According to CMS, fewer new drugs came onto the market.
Paul Ginsburg, president of the Center for Studying Health System Change, a Washington research group, said the report didn’t address the biggest question: “When the economy gets strong again, do we just return to the old business as usual? Probably,” he said. “But there’s a chance that the experience of people economizing may have longer-lasting effects.”
The Obama administration was pleased with the report and called it good news for the healthcare law, although some researchers found the law had a less than 0.1 percent impact on national health spending in 2010. “These numbers do not take into account all of the cost-saving provisions in the Affordable Care Act that are still being implemented. But they do show why the Affordable Care Act is so important,” senior White House adviser Nancy-Ann DeParle said. According to DeParle, the insurance regulations in the law will keep insurance companies “in check.”
The phasing in of the patient Protection and Affordable Care Act (ACT) which will expand insurance coverage to as many as 32 million people, will incur larger cost increases later in this decade. National health spending is expected to increase by 8.3 percent in 2014, when the most ambitious coverage expansions take effect, according to CMS projections. “The law will control the growth of healthcare spending through fraud prevention, better coordination of care, disease prevention and overhauling insurance markets,” DeParle said.
According to DeParle, “Starting in 2011, insurance companies were required to publicly disclose and justify any premium increases larger than 10 percent. Many states have the authority to reject unreasonable premium increases and the Affordable Care Act gives states $250 million to strengthen their rate review programs. Additionally, insurers are required to spend at least 80 percent of your premium dollars on healthcare expenses instead of overhead and profits.”