What to make of the CMS National Health Expenditure Report

by Clive Riddle, January 5, 2010

CMS’ Office of the Actuary today issued their annual report on the National Health Expenditure Accounts. CMS states the report contains good and bad news. On one hand, “nominal health spending in the United States grew 4.4 percent in 2008, to $2.3 trillion or $7,681 per person.  This was the slowest rate of growth since the Centers for Medicare & Medicaid Services started officially tracking expenditures in 1960.” On the other hand, “health care spending continued to outpace overall nominal economic growth, which grew by 2.6 percent in 2008 as measured by the Gross Domestic Product (GDP).”

CMS states that “the 4.4 percent growth in 2008 was down from 6.0 percent in 2007, as spending slowed for nearly all health care goods and services, particularly for hospitals. However, health spending as a share of the nation’s GDP continued to climb, reaching 16.2 percent in 2008, up 0.3 percentage points from 2007.” Jonathan Blum, CMS Director of Center for Medicare Management tells us “this report contains some welcome news and yet another warning sign. Health care spending as a percentage of GDP is rising at an unsustainable rate.”

One of the supplemental reports: the Nation's health dollar - where it came from, where it went, provides a nice brief summary pie chart that breaks down as follows:

The Nation’s Health Dollar, Calendar Year 2008: Where it Came From:

• Private Insurance - 33%
• Medicare - 20%
• Medicaid/SCHIP – 15%
• Other Public – 13%
• Out of Pocket – 12%
• Other Private – 7%

The Nation’s Health Dollar, Calendar Year 2008: Where it Went:

• Hospital Care - 31%
• Other Spending- 25%
• Physician and Clinical Services - 21%
• Prescription Drugs - 10%
•  Nursing Home Care - 6%
• Program Administration and Net Cost - 7%

Digging into other supplemental files provided with the report, it’s interesting to examine trends in the portion of public vs. private funding of spending, and the subset of private spending from consumer out of pocket payments, which we compiled as follows:

% of Total National Expenditure	2008	2005	2000	1995	1990	1980	1970	1960
Total Public Payments	47.3%	45.4%	44.1%	45.8%	40.2%	42.0%	37.5%	24.5%
Total Private Payments	52.7%	54.6%	55.9%	54.2%	59.8%	58.0%	62.5%	75.5%
Consumer Out-of-pocket	11.9%	12.5%	14.2%	14.4%	19.1%	22.9%	33.3%	46.9%

The continual shift between public and private funding is certainly apparent, as is the decline in the portion accounted by consumer out of pocket payments. While much has been made over ever increasing consumer cost sharing, that concern has been expressed in absolute, as opposed to relative terms. Relative to total national health expenditures, consumer out of pocket costs continue to decline as a percentage. Of course the shift towards private funding is the cause- as more consumers are covered by public vs private programs over time and public cost sharing requirements are generally much less than private cost sharing.

Here’s some other highlights CMS noted in regard to the actual numbers comprising where these dollars went or came from:

• Hospital spending in 2008 grew 4.5 % to $718.4 billion, compared to 5.9 % in 2007, the slowest rate of increase since 1998.
• Physician and clinical services’ spending increased 5.0 % in 2008, a deceleration from 5.8 % in 2007.
• Retail prescription drug spending growth also decelerated to 3.2 % in 2008 as per capita use of prescription medications declined slightly, mainly due to impacts of the recession, a low number of new product introductions, and safety and efficacy concerns.
• Spending growth for both nursing home and home health services decelerated in 2008.   For nursing homes, spending grew 4.6 % in 2008 compared to 5.8 % in 2007.
• Total health care spending by public programs, such as Medicare and Medicaid, grew 6.5 % in 2008, the same rate as in 2007.
• Health care spending by private sources of funds grew only 2.6 % in 2008 compared to 5.6 % in 2007.
• Private health insurance premiums grew 3.1 % in 2008, a deceleration from 4.4 % in 2007.