Health Spending Consumed Record Portion of Economy in 2009

Health care spending in the U.S. surged 5.7 percent to $2.5 trillion in 2009, according to new projections from the Centers for Medicare and Medicaid.

Stethescope and money

Even as the economy shrank last year, the health care sector's share of economic activity rose more than a full point to 17.3 percent of GDP, up from 16.2 percent in 2008, marking the largest one-year increase in GDP share since the government began keeping track of health spending in 1960.

Government spending on health care has grown nearly three times as fast as health spending by the private sector in 2009, driven by a 10 percent increase in Medicaid spending, as jobless Americans increasingly turned to state aid for health coverage.  

Health expenditures by the public sector is projected to have grown 8.7 percent to $1.2 trillion last year, while spending by the private sector is forecast to have risen 3 percent to $1.3 trillion.

"It's consistent with what we would expect during a recession, including one of this size, " says Christophe Truffer, a CMS actuary and one of the authors of the government's annual projections, adding that he expects similar trends this year.

"We project health spending will be relatively flat, as we see a projected economic rebound."

While private insurance enrolment shrank by more than one percent in 2009, private health spending continued to grow, after more laid-off workers took up COBRA coverage due to government subsidy of the coverage.  Higher spending on drugs and treatment for the H1N1 virus also drove more spending on drugs.

Spending on health care for the elderly continues to be a major driver of higher government health costs.  Medicare spending in 2009 grew to $507 billion, a projected increase of 8.1 percent, and down from 8.6 percent in 2008.   

Analysts say Medicare spending growth will slow to just 1.5 percent in 2010, if Congress does not overturn the 21 percent physician payment rate cut mandated by current law, and just over 5 percent if the cuts are rescinded.

Between 2010 and 2019, analysts see total health care spending growing at an annual rate of 6.1 percent, continuing to outpace the growth of the economy by about 1.7 points.  At that rate, by the end of the decade, national health spending is projected to reach $4.5 trillion, eating up 19.3 percent of GDP. 

Yet, that's down slightly from last year's longer-term growth projection. Part of that revision, says Truffer, "is tied to a higher projection of GDP, which is tied to a higher rebound in economic growth than we had projected last year."

The researchers did not account for potential passage of health reform, when looking at their longer term projections.  Even with no change, they see government health care spending accounting for more than half of national health care spending by 2012.