Health Care Consumes Record 17.6% of US Economy

NCHC Writers
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News Article

January 6, 2011

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CostEconomic Impacts

The 2009 recession is the longest the United States has seen since World War II and has led to lower than expected health care spending according to the National Health Expenditure (NHE) Report published by Health Affairs.  In 2009, health care spending increased 4 percent, the second lowest rise since 1960. Despite this, some sectors saw accelerated health care spending: home health care jumped 10 percent, residential and personal care saw an 8.3 percent increase, and prescription drug spending rose 5.3 percent.  Federal Medicaid spending, in particular, increased as a result of the recession. Annual health spending increased to $2.5 trillion, 17.6 percent of the GDP.

The Wall Street Journal reported “Health Spending Eats up Record Chunk of GDP” in December of 2010. The article quoted Health Care for America Now executive director, Ethan Rome, “It’s [Medicaid] the safety net for the private sector. It goes up when the private sector goes down.” States’ budgets bear the biggest Medicaid burden and many states are worried for 2014, when the ACA will add about 16 million more people to the program. States such as Texas have considered dropping out of the Medicaid– a voluntary program.

The recession spiked unemployment rates, causing many Americans to lose their private health insurance. The NHE reports a 22 percent increase in federal spending on the Medicaid program. In addition to increased Medicaid enrollment, the American Recovery and Reinvestment Act (ARRA) allocated $34 billion by way of an increase in Federal Medical Assistance Percentages (FMAP). In comparison, federal Medicaid spending in 2008 was $7 billion.

Karen Ignagni, president and CEO of America’s Health Insurance Plans (AHIP), wrote to Congress, “Rising health care costs threaten our economic competiveness, make health care coverage less affordable, and crowd out the urgent national priorities. We urge policymakers to work on a bipartisan basis to pass reforms that will control the soaring cost of medical care.”

Contributing to the health care spending rise was the increase in prescription drug usage, a result of the recession and the H1N1 pandemic. The Centers for Medicare and Medicaid Services (CMS) Chief Economist Rick Foster stated that the 5.3 percent increase is far from the 18.4 percent increase in 1999. Foster attributes this reduction to the Medicare Modernization Act in 2003 and the creation of the Medicare Part D program.

In spite of lower than expected spending, Americans still faced increased financial burdens—health care spending increased while the resources to pay for care lessened. The report noted, “by the end of 2009, the United States was devoting just over one-sixth of its available financial resources to its health care system- a system that in 2010 embarked on an ambitious reform aimed at expanding coverage, improving health outcomes, and slowing spending growth.”

Medicare’s rate of growth remained constant from 2008 and Medicare spending on durable medical equipment increased less than 1 percentage point in 2009. The report does not include the economic impact of the ACA.

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