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Health Care Spending Skyrockets and Shows No Signs of Tapering

In 2009

In 2009, health care spending grew by 5.7 percent, now reaching $2.5 trillion. It is the largest increase since the federal government began tracking these figures in 1960, according to a report from the Centers for Medicare and Medicaid Services (CMS).

Health care costs also made up 17.3 percent of the US’s gross domestic product (GDP), which was 1.1 percent higher than in 2008. CMS’s 2009-2019 projections indicate that health expenditures will continue to grow “increasingly faster,” at an annual rate of 6.1 percent – 1.7 percentage points faster than annual GDP growth – and climb to $4.5 trillion.

Without the passage of a health care reform bill, currently stalled in the House, public spending will comprise more than 50 percent of all national health expenditures by 2012.

The costs grew at a rate of 8.7 percent in 2009, higher than the 3 percent increase in private spending, which has a slower growth rate due to the economic downturn. CMS projected that public spending will continue to increase at a higher rate than private spending over the next nine years.

Per capita health care spending was $8,046 in 2009, and is expected to increase to $13,387 by 2019.

According to data from the Organization for Economic Cooperation and Development (OECD), the US spent about $7,290 per person in 2007, by far the highest amount for any of the developed countries observed. Switzerland came in second at $4,417 per person. Canada spent $3,895, while the UK, which spent the average amount for developed countries in the OECD data, spent $2,986.

The report might galvanize efforts to pass health care reform legislation, which have been floundering lately. The Obama administration faces tough opposition in the House and the Senate, and the president announced in his State of the Union address that jobs would be his main priority. Polls also show that a majority of Americans disapprove of the way health care reform has been handled.

On Thursday at a Democratic Party fundraising event, President Obama said that health care reform was the “single best way” to reduce the deficit, a fact that he added has raised no argument.

“Nobody can dispute the fact that if we don’t tackle surging health care costs, then we can’t control our budget,” he said.

The report lists prices and utilization (both the volume and intensity of services) as the two primary drivers of growth in overall health care spending, with smaller effects from population growth and the age-sex mix.

The two main areas of federal spending are Medicare and Medicaid. Last year, Medicare costs rose by 8.9 percent as more baby boomers reached the age to qualify for its benefits. Though the growth will slow in 2010 due to mandated reductions in physician payments, Medicare will continue to grow as more individuals become eligible for it.

Meanwhile, the rise in Medicaid spending, the largest since 2002, was “largely a result of rising unemployment.” CMS expects the costs of both to increase continuously as eligibility rises and the economic downturn continues, and predicts an annual increase of 7.1 percent in federal spending from 2009 to 2019.

The growth of private health insurance spending was slower, at 3.3 percent, while out-of-pocket payments grew by 2.1 percent. The annual growth prediction for private spending was 5.2 percent. The report cited “private insurance enrollment that is expected to have declined 1.2 percent” and increasing unemployment as factors in this decline, which occurred despite the federal subsidies granted by the American Reinvestment and Recovery Act (AARA) of 2009.

Spending on actual health services and supplies, including hospital care, physician and clinical services, prescription drugs and other medical products, increased by 5.7 percent in 2009. Annual growth rates from 2009 to 2019 are projected at 6.1 percent.

The CMS report states that no “estimated impacts of any health care reform proposals” are included as a factor in its projections.

At the same fundraiser on Thursday, President Obama said “we should take our time” in passing a final health care bill so that he could hear ideas from the Republicans, sit down with both parties and health care experts and move forward on a vote.

However, he added, the key is to “not let the moment slip away.”

Republicans have largely opposed the health care bill, with some, like House Minority Leader John Boehner (R-Ohio), calling it a “government takeover” of health care that will raise costs. They have also argued that the Democrats have not invited them to help draft the legislation.

Since Republican Sen. Scott Brown won the Massachusetts Senate race, Democrats are divided over what to do about the health care bill, as the Republicans now have enough members to filibuster and block the vote. Additionally, many prefer to focus on stressing job growth.

If the bill doesn’t pass through Congress, President Obama warned that lawmakers in both parties would have to explain to their voters why plans for more efficient health care and cheaper health insurance fell apart.

“There will be elections coming up,” he said, referring to Congressional elections in November. “Then the American people can make a judgment as to whether this Congress has done the right thing for them or not.”

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