U.S. healthcare spending growth slowed by 1.6% in 2008

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U.S. healthcare spending growth decelerated in 2008, increasing 4.4 percent compared to 6 percent in 2007, as spending slowed for nearly all healthcare goods and services, particularly for hospitals, according to statistics released by the Centers for Medicare & Medicaid Services (CMS). Total healthcare expenditures reached $2.3 trillion in 2008, which translated to $7,681 per person and 16.2 percent of the U.S. gross domestic product (GDP).

Health spending growth for state, local and private sources of funds also slowed while federal health spending growth accelerated in 2008, the agency reported. Despite slower growth in overall health expenditures, the share of GDP devoted to healthcare increased from 15.9 percent in 2007.

CMS released the healthcare spending data by type of service or product for personal healthcare, including:

  • Hospital: Hospital spending growth increased 4.5 percent to $718 billion compared to 5.9 percent growth in 2007. The 2008 growth was the slowest rate of increase since 1998 and was influenced by decelerating price growth, investment losses, and slower growth in Medicaid hospital spending. Partially offsetting these factors, the agency said, were increased growth in both inpatient and outpatient utilization and faster Medicare hospital spending growth.
  • Physician and Clinical Services: Spending on physician and clinical services increased 5 percent in 2008 to $496.2 billion, a deceleration from 5.8 percent in 2007. A slight increase in growth of use and intensity in 2008 was offset by decelerating price growth.
  • Other Professional Services: Spending growth for other professional services, which includes therapists, chiropractors, optometrists and podiatrists, decelerated from 6.5 percent in 2007 to 5.6 percent in 2008. Expenditures reached $65.7 billion in 2008.
  • Home Health: Spending growth for freestanding home healthcare services decelerated from 11.8 percent in 2007 to 9 percent in 2008. Expenditures reached $64.7 billion in 2008.
  • Prescription Drugs: Prescription drug spending growth decelerated from 4.5 percent in 2007 to 3.2 percent in 2008. “Impacts of the recession, a low number of new product introductions, and safety concerns all contributed to the slowdown in growth,” CMS noted. However, drug prices increased 2.5 percent in 2008.

For 2008, CMS said that the major sources of funding healthcare spending were:

  • Medicare: Medicare spending grew 8.6 percent in 2008 to $469.2 billion; this followed growth of 7.1 percent in 2007. Spending growth for fee-for-service Medicare accelerated to 5.3 percent in 2008 compared with 3.8-percent growth in 2007 caused in part by accelerated spending for hospitals. Medicare Advantage spending increased 21.3 percent in 2008, similar to the 22.1 percent growth in 2007, the result of a continued shift in enrollment. Total Part D (drug benefit and administration) spending increased 10 percent to $51.5 billion in 2008.
  • Medicaid: Total Medicaid spending grew 4.7 percent in 2008 to $344.3 billion, a deceleration from 6.1 percent growth in 2007. Slower Medicaid spending growth for hospital, other personal health care and home health care services outweighed faster growth in all other Medicaid spending on goods and services. Federal Medicaid expenditures increased 8.4 percent, while state Medicaid expenditures declined 0.1 percent, the first decline in program history. This difference in growth is due to a significant increase in the Federal Medical Assistance Percentages (FMAP) used to determine the federal Medicaid payments to states. The American Recovery and Reinvestment Act of 2009 provided a temporary 27-month increase in the FMAP retroactive to the fourth calendar quarter of 2008.
  • Private Health Insurance (PHI): Premiums grew 3.1 percent in 2008, a deceleration from 4.4 percent growth in 2007. PHI benefit payment growth also slowed to 3.9 percent in 2008 from 4.8 percent in 2007. These trends were heavily influenced by the recession as enrollment in PHI plans declined and the ratio of the net cost of private health insurance to total private health insurance premiums continued its recent decline to 11.7 percent in 2008, compared with 13.7 percent in 2003, according to the agency.
  • Out-of-Pocket: Out-of-pocket spending grew 2.8 percent in 2008, a significant deceleration from the 6 percent growth in 2007 as out-of-pocket expenditures for retail prescription drugs declined and out-of-pocket spending growth for physician and clinical services decelerated.