Economic Recession Contributes to a Record Slowdown in Health Care Spending in 2009

Spending on health care in the United States grew by 4.0% in 2009, after growing only 4.7% in 2008—the two slowest rates of growth in the 50-year history of recordkeeping by the National Health Expenditure Accounts. U.S. health care spending amounted to $2.5 trillion in 2009, or $8,086 per person, according to a report prepared by the Centers for Medicare and Medicaid Services (CMS).

Yet even with the slowdown, the 4.0% rate of growth greatly outpaced overall economic growth in the nation, which saw the economy, as measured by the gross domestic product (GDP), shrink by 1.7% in 2009, the largest drop in GDP since 1938. Expressed as a percentage of GDP, health care spending reached 17.6% in 2009—that is, the nation devoted about a sixth of available financial resources to its health care system. Expressed as a share of total federal revenue, health care spending increased from 38% in 2008 to 54% in 2009.

Although U.S. spending on health care has grown at a slower rate every year since 2002, the severe recession, which officially began in December 2007 and ended in June 2009, contributed substantially to the record spending slowdown in 2008 and 2009. Specifically, private health insurers saw spending growth decelerate—from 3.5% growth in 2008 to only 1.3% in 2009. In December 2009 the unemployment rate reached 10.0%, and private insurers lost 6.3 million enrollees over the course of the year, or 3.2% of their total enrollment. As a result, private health insurance accounted for a slightly smaller share of total health spending in 2009—32%, compared with 33% in 2008, according to the CMS report.

Job loss and consumers' financial concerns also contributed to a substantial slowdown in out-of-pocket spending, including deductibles, copayments, and goods and services not covered by insurance. Compared with a growth rate of 3.1% in 2008, consumer out-of-pocket spending in 2009 grew by only .4%, accounting for 12% of total health spending. The report attributes the slower rate mainly to decreased use of goods and services, such as dental services, services provided by nursing care facilities and continuing care retirement facilities, and physician and clinical services.

The report cites provider belt-tightening as another factor in the spending slowdown. Overall, providers reduced their spending by 2.7% on capital investments in 2009. Private providers and state and local government providers decreased their investment in structures and equipment by 4.3% and 1.1%, respectively.

An important factor offsetting the slowdown in spending growth was the large increase (7.4%) in Medicaid enrollment in 2009, which meant an increase in Medicaid spending. Total federal and state Medicaid spending grew by 9.0% in 2009, compared with 4.9% growth in 2008. Medicaid spending, which reached nearly $374 billion in 2009, accounted for 15% of total health care spending. The federal government saw its share of total Medicaid spending rise by 22% in 2009, reaching 66% (from a 59% share in 2008), largely as a result of $34 billion in enhanced federal aid to state Medicaid programs provided by the American Recovery and Reinvestment Act of 2009. As a result of the federal aid, states' share of Medicaid spending fell by 9.8%, the largest decline in the program's history.

Prescription drug spending, which reached $249.9 billion in 2009, was also a factor offsetting the slowdown. In 2009 spending on retail prescription drugs grew 5.3%, after growing in 2008 at its slowest rate (3.1%) since 1961. The CMS report attributes the higher growth to increased drug prices in 2009 (3.4% price increase) and to a substantial increase in the number prescriptions dispensed, which grew by 2.1% in 2009—a rate similar to the average annual rate of growth in prescriptions seen before the recession (2.2%).

Overall spending for hospital services grew by 5.1% in 2009 and 5.2% in 2008, which is much slower than the average annual growth rate of 7.2% per year between 1999 and 2007. Spending by private health insurers constituted the largest share of hospital spending in 2009 (35%); however, largely as a result of fewer enrollees, private insurers saw their hospital spending slowed to a 2.7% rate of growth in 2009, after a 5.6% growth rate in 2008. At the same time Medicaid hospital spending grew by 10.2% in 2009, after growth of 3.3% in 2008. According to the report, the substantial increase is not only attributable to increased Medicaid enrollment but also to the large proportion of enrollees who use the emergency department as a substitute for primary care.

Data summarized in the CMS report represent official estimates of total U.S. health care spending. Spending is measured by the types of goods and services delivered, the programs and payers that pay for that care, and the sponsors ultimately responsible for financing it. Sponsors' shares of total spending were as follows: federal government, 27%; state and local governments, 16%; households, 28%; private businesses, 21%; and other private revenues, 7%.

The report is available at www.cms.gov. An article summarizing the findings appears in the January 2011 issue of Health Affairs.