US health spending slowed in 2008

WASHINGTON - The U.S. spent an average of $7,681 per person on health care in 2008, for an eye-popping total of $2.3 trillion - even though spending actually slowed dramatically that year because of the recession, a new federal study says.

Health spending didn't slow down as much as the nation's overall economic output, the study said, in keeping with a decades-old trend that has now pushed health care costs to account for over 16 percent of the nation's economy.

The figures underscore the challenges confronting President Barack Obama and lawmakers seeking to overhaul the system. Obama has repeatedly cited spiraling health costs as one of the main reasons Congress needs to pass his health plan, and administration officials said the findings highlighted the need for quick action.

"This report contains some welcome news and yet another warning sign," said Jonathan Blum, a top official at the government's Centers for Medicare and Medicaid Services. "Health care spending as a percentage of GDP (gross domestic product) is rising at an unsustainable rate. It is clear that we need health insurance reform now."

However, health care experts question whether there are significant cost-containment measures in the bills passed by House and Senate Democrats before Christmas - and Republicans insist there aren't. The new report could provide fodder for both sides as lawmakers work to reconcile the House and Senate legislation into a final bill in coming weeks.

"I agree we need reform, but both the House and Senate Democrat bills make the problem worse by increasing the cost of health care," said Rep. Dave Camp of Michigan, top Republican on the House Ways and Means Committee. "They spend $1 trillion we don't have and bend the curve the wrong way."

Republicans cited earlier analyses by the Centers for Medicare and Medicaid that found the sweeping overhaul legislation that seeks to extend coverage to more than 30 million uninsured Americans over the next decade would lead to increased health care costs. Democrats counter that the bills begin to slow cost increases over time.

The new analysis by economists at the Centers for Medicare and Medicaid appeared Tuesday in the journal Health Affairs. It found that total national health spending grew 4.4 percent in 2008, the slowest rate of increase since CMS began tracking health spending in 1960. By contrast, the growth rate in 2007 was 6 percent. The study seeks to measure all public and private health expenditures.

Still, the growth of health costs was higher than the overall growth in gross domestic product, which stood at 2.6 percent in 2008 before adjusting for inflation.

Health spending reached 16.2 percent of the gross domestic product in 2008, up from 15.9 percent in 2007. That added up to $2.3 trillion and far higher per-person expenditures than in other industrialized countries.

Even so, the recession made itself felt throughout the health care sector in 2008, with slowdowns in out-of-pocket spending, private insurance premiums and hospital spending - the latter largely because of loss of revenue from hospitals' investment incomes.

The slowdown in health insurance premium costs might seem counterintuitive, given the complaints of increased health care costs coming from individuals and businesses large and small. Part of the reason is because of the jobs lost in the recession, forcing people off the insurance rolls and shrinking the overall cost of premiums nationally. Enrollment in private health insurance declined from 196.4 million in 2007 to 195.4 million in 2008, the report said.

Medicare, the federal health insurance program for people 65 and older, was the only area where the rate of spending growth in 2008 was greater than in 2007. That's partly because Medicare recipients are largely out of the work force and therefore more insulated from the recession. Medicare hospital spending grew, and more patients shifted into privately run Medicare Advantage plans, which offer better benefits than traditional fee-for-service Medicare but also cost more.

The recession also had the effect of shifting a greater share of health spending onto the federal government, which has sent billions to states to help them with their share of Medicaid costs. Medicaid enrollment in 2008 rose along with unemployment, but overall spending on Medicaid services slowed anyway as cash-strapped states scrimped on costs.