Federal legislation caused significant growth in national healthcare spending last year, and while the rate of increase will fall slightly over 10 years, the trend is still upward, according to new government estimates.
Total U.S. healthcare expenditures grew an estimated 9.6% in 2001-almost a full percentage point above earlier federal projections-to $1.42 trillion from $1.3 trillion in 2000, according to a report released last week by the Centers for Medicare and Medicaid Services. National health spending will nearly double to $2.8 trillion by 2011 and will grow to 17% of the gross domestic product.
The 2001 estimates mark the highest growth increase since the early 1990s. But instead of falling by half in a few years as they did in the 1990s, rates are expected to decline slowly to an average annual rate of 7.3% through 2011, the CMS said in its report published in the March/April issue of Health Affairs.
"Put your helmets on. There is going to be some shooting," said Mark Pauly, a health economist at the Wharton School of the University of Pennsylvania.
While last year's big bump in spending was caused by increases in drug prices and federal legislation enacted in 2000 that increased payments to providers, the continuing trend means healthcare interests will have to compete with one another for dollars, he said.
In the early 1990s, national hospital spending increased slowly. The latest projections show hospitals now will compete with other health sectors such as nursing homes, which are projected to increase spending by an average of 5.3% each year until 2011, and prescription drugs, the fastest growing health sector, which will double its share of overall healthcare spending in that time.
"They are all growing now," Pauly said.
Hospital spending will total a projected $774.5 billion in 2011, up from an estimated $446.3 billion in 2001, according to the CMS. It grew an estimated 8.3% in 2001, up 3 percentage points from 2000.
Two drivers have pushed the increase-more volume and higher hospital costs, said Carmela Coyle, the American Hospital Association's senior vice president for policy. Though she welcomed the increase in consumers receiving care, the higher costs from workforce shortages and prescription drugs continue to put pressure on hospitals, she said.
"Volume going up is only a great thing if you are getting paid greater than the cost of care," Coyle said.
The growth should slow to an average annual rate of 5.9%, largely because of the delayed impact of lower U.S. income growth, the CMS report found.
The outlook for public and private health spending looked similar. Both grew dramatically in 2001 but will moderate in coming years, according to the CMS estimates.
Groups fighting the patients' bill of rights and other legislation that would place restrictions on managed care will add the report and its high growth projections to their arsenal, Pauly said.
In January, a CMS report found healthcare spending rose 6.9% to $1.3 trillion in 2000. The January release of final 2000 spending figures, which included the largest acceleration in spending growth in 12 years, prompted the CMS to declare the "end of an era of reasonably affordable healthcare cost growth" (Jan. 14, p. 12). The more recent projections add fuel to the fire.
"The healthcare system needs a broad range of affordable health choices, and it is time for legislators to draw a bright line between protecting patients and protecting special interests," said Karen Ignagni, American Association of Health Plans president and chief executive officer, in response to the latest CMS figures.
But while the report is a wake-up call for lawmakers, the projections mean they will be more mindful of costs in any healthcare policy change, said Paul Ginsburg, president of the Center for Studying Health System Change.
Employers, who already knew of the higher spending rates, will be the first to act, Ginsburg said. "The big concerns they had a decade ago are back," he said.
There are some differences, however. In the early 1990s, employers drove the costs down in a mass push toward managed-care plans. This time around, employers are likely to share the cost burden with their workforce, perhaps offering a choice of cost-sharing or more restrictive plans, Ginsburg said.
Consumers should feel the impact within the year when they receive information on 2003 healthcare plans. "Their wake-up call hasn't come yet," Ginsburg said.