2011 health spending: A closer look

New projections for U.S. health spending, released earlier this week, were the latest figures to suggest that households and employers have responded to the weak economy by spending less on healthcare.

The trend has been pronounced in federal spending estimates and projections since 2009, when U.S. health spending growth hit a historic low rate of 3.8%. (The average annual growth rate, since record keeping began in 1960, is 9.6%.) The first look at 2011, included in this week's data, shows the “lingering effects of the recent recession and modest recovery,” wrote the economists and actuaries who compiled the projections for the CMS in the journal Health Affairs.

Healthcare spending increased 3.9% in 2011, according to the CMS projection. That's identical to the prior year's relatively modest growth rate. It's also in line with last year's increase in the gross domestic product. (That will not last, projections show.)

Anemic household income, fewer privately insured patients, higher household out-of-pocket costs, and slower payment rate increases from commercial insurers and Medicare all contributed to the 2011 slowdown, the authors reported. Private health insurance spending cooled to 1.8% in 2011 from 2.4% the prior year. That's compared with the average annual growth rate since 1960 of 10.8%.

Hospitals last year saw the slowest rate of growth for spending by private insurers in 16 years, 1.4% in 2011, down from 2.2% the prior year. Hospitals have reported a squeeze on revenue and weaker demand since the recession. The economy, the slower revenue growth and an expectation of continued pressure on costs from commercial and public insurers has prompted efforts to slash hospital operating costs.

Hospitals, where the operating overhead is significant, have become targets for policymakers seeking a more sustainable approach to curbing U.S. health spending than a weak economy. One obvious effort has been the federal government's push to prevent avoidable repeat visits to the hospital. Other initiatives would offer financial incentives to treat patients in the lowest-cost setting possible and manage or prevent chronic diseases before they become acute. How successful those efforts might be is unclear.

Hospital spending as a share of the nation's overall healthcare tab will remain largely constant at about 31% through the next decade, according to CMS projections. The percentage appears to have peaked in the early 1980s at about 40% and declined through the last decade before edging upward again in 2008.

Physician and clinical services last year increased at a rate of 2.7% after the prior year's record low of 2.5%. The authors again cited the economy as the culprit for the sluggish pace.

Prescription drug spending accelerated, thanks to price hikes and patients who used more costly medication. Spending on drugs grew 3.9% from 1.2% the prior year.

You can follow Melanie Evans on Twitter: @MHmevans.