Healthcare Business News

Healthcare spending lags

2012 growth pegged at 4.3% through November

By Melanie Evans
Posted: January 5, 2013 - 12:01 am ET

The Great Recession that ended 3 years ago continued to drag down national spending on healthcare in 2012, according to a new estimate of U.S. healthcare expenditures.

Recessions “have a lagged effect on health spending,” said Charlie Roehrig, director of the Altarum Institute's Center for Sustainable Health Spending.

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The center's monthly national health spending estimates for the first 11 months of last year showed growth rates have edged upward from the previous year, but remain historically low. “It can go out quite a few years,” Roehrig said.

With CMS actuaries poised to release their estimates for 2011 on Monday, the Altarum analysis showed an uptick in the first half of that year that pushed growth to an estimated 5.2%. But 2012 spending registered a more moderate growth of 4.3% through November, according to George Miller, an Altarum Institute fellow.

Federal estimates for actual U.S. health spending lag by slightly more than a year. However, federal projections for 2011 and 2012, released last July in the journal Health Affairs, also suggested that health spending remains relatively sluggish.

U.S. health spending, with average annual growth of 9.6% since 1960, slowed sharply with the 18-month recession that ended in June 2009 to a record low of 3.8% that year, according to federal estimates. The severe downturn, with its high job losses and reduction of household incomes to levels no higher than a decade earlier, dramatically slowed health spending. The economy's drag on the sector continues, federal estimates show.

In their recent reports, federal actuaries said that in a tepid economic recovery, less use of medical care and modest healthcare inflation would hold 2011 national health spending growth to a near-record low rate of 3.9%.

Actuaries anticipated slightly faster growth in 2012, 4.2%, as households and employers continue to seek to curb health spending.

“Clearly the economy is important,” said Paul Ginsburg, a health economist and president of the Center for Studying Health System Change. But federal data also reflect a slowdown in Medicare spending, which is less susceptible to the economy; that suggests health policy may have also dampened spending. Medicare spending grew 5% in 2010 compared with 7% the prior year, federal data show.

Ginsburg said he did not believe more sluggish Medicare growth was attributable to accountable care, which he said has too little of a share of spending to influence growth rates.

The Standard & Poor's Healthcare Economic Indices have reported consistently slower growth in Medicare revenue. The rating agency reported a 2.41% growth rate for revenue paid to hospitals and professional services from Medicare fee-for-service for the year ended in October. The Medicare revenue growth rate dipped below 3% in mid-2010 and has remained there since.

Ginsburg noted faster growth rates for commercial insurance revenue, which increased 7.16% during the same 12-month period.

Federal projections released last July show an overall Medicare spending growth rate of 6.3% for 2011 and 5.9% for 2012.

Actuaries also projected a sharp slowdown for Medicare spending in 2013 under policies that require steep cuts to physician pay and an up to 2% Medicare cut. However, without the physician pay cut—which Congress delayed for a year in a last-minute budget deal on Jan. 1—Medicare growth for 2013 was projected to be 5%.

Despite the slowdown in national health spending, the healthcare services sector continued to hire through the recession, though the sector's job growth dipped below average for the last decade in 2009, 2010 and 2011.

The sector saw average hiring growth of 2.3% for 2012, according to preliminary data that the U.S. Bureau of Labor Statistics reported Jan. 4, adding 45,000 jobs in December and accounting for more than a quarter of the increase all nonfarm employment that month.

Roehrig said weaker wage growth may be one factor that could help reconcile steady healthcare hiring with the industry's historically slow spending growth.

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