Wednesday, January 6, 2010

Recession and health spending growth

The new issue of the journal health affairs has a paper documenting national spending on health care in 2008; the headline is that health spending grew slower in 2008 than it has in many years, due to the recession. They note the health care spending grew by 4.4% in 2008, to $2.3 Trillion ($7,681/capita). In spite of the slowing of the growth rate, the percentage of the GDP spent on health rose from 15.9% to 16.2% because health care still grew faster than other parts of the economy.

General inflation during 2008 was only 0.1% according to the Bureau of Labor Statistics, although 2008 saw an anomaly in which two methods of calculating inflation that are typically similar were very dissimilar during 2008 (other method would say 3.8%).

There are several interesting parts of this paper in addition to the overall finding/report. First, they have historical data showing that recessions have typically slowed the rate of health care inflation (Jan-July '80 recession, the double dip July '81-Nov. '82, July '90-March '93; March 01-Nov.'01 and this recession Dec. 07-? [Exhibit 3 in the paper]. Second, exhibit 3 also shows the price (amount paid for things) versus non-price drivers of health care inflation (population factors, intensity of treatment, etc.). Prices have consistently risen faster than non-price factors the past 30 years in health care, and that was true in 2008. Finally, federal spending rose faster than in the past due to more people being eligible for Medicaid due to the recession, the fact that the American Recovery and Reinvestment Act increased federal share of Medicaid, and there was an acceleration of costs in Medicare Advantage due to the MMA 2005 funding changes to the program (essentially, purposefully over-paying them to encourage people into private plans).

In total, the federal government accounted for 35% of total national health spending in 2008, up from 34% the year before. When coupled with state Medicaid spending, government pays for about 1 out of every 2 health care dollars today.

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