CMS Study Indicates Higher Healthcare Public Spending Share by 2019

Health Affairs published a study on the U.S. healthcare expenditure pattern for 2009 and projections for a decade by the Centers for Medicare and Medicaid Services (CMS). The aim of the study was to provide a focused insight over the trend in healthcare spend and factors affecting its growth. Though the study does not take into account proposed legislation in the healthcare reform process but gives a snapshot of the challenges in the current healthcare financing structure. The key highlights of the study are as follows:

Figures for 2009

• National health spending has grown to 5.7% to US$2.5 trillion. This is a 1.3-percentage-point growth from 2008 growth levels. Healthcare expenditure as a share of GDP is at 17.3%, experiencing a 1.1-percentage-point growth.
• Public payors paid out US$41.2 trillion, registering an 8.7% growth than that of private payors at US$1.3 trillion at 3%. Medicaid enrolment is up 6.5% and spending at 9.9%.
• Decline in private payor expenditure despite federal subsidies increasing aimed at boosting coverage through Consolidated Omnibus Budget Reconciliation Act (COBRA).
• Medicare spending for 2009 is at 8.1% to reach US$507.1 billion. Interestingly, growth is slower than 2008 levels of 8.6%. The report indicates that the decelerations are due to prescription drug and hospital spending levels.
• Out-of-pocket and private health insurance showed contrasting growth patterns with the former registering a drop from 2.8% to 2.1% while the latter was at 3.3% up from 3.1%.

National Health Expenditures, Average Annual Growth 2008-19 (%, select categories and years)
Spending Category	2008	2009	2010	2014	2019	2009-19
National Health Expenditure	4.4	5.7	3.9	5.8	6.8	6.1
Health Services and Supplies	4.4	5.7	3.8	5.8	6.8	6.1
Personal Healthcare	4.6	5.9	3.5	5.7	6.7	6.0
Hospital Care	4.5	5.9	3.7	6.0	6.6	6.1
Professional Services	4.8	6.3	2.6	5.6	6.7	5.9
Physician and Clinical Services	5.0	6.3	1.5	4.8	6.4	5.4
Other Professional Services	5.6	5.9	2.7	6.0	6.6	5.9
Dental Services	5.1	3.2	3.3	5.9	5.9	5.4
Other Public Healthcare	2.6	11.2	8.5	9.3	9.5	9.5
Retail Outlet Sales of Medical Products	3.4	4.8	4.8	5.3	6.9	5.9
Prescription Drugs	3.2	5.2	5.6	5.5	7.3	6.3
Durable Medical Equipment	4.1	1.7	1.5	4.5	5.7	4.5
Non-Durable Medical Products	4.2	4.7	2.0	4.4	5.0	4.5
Programme Administration and Net Cost of Private Health Insurance	0.7	2.0	6.0	6.9	7.3	6.5
Government Public Health Activities	7.1	8.2	7.5	5.8	6.8	6.6
NHE per Capita	3.5	4.8	3.0	4.9	5.9	5.2
Population	0.9	0.9	0.9	0.9	0.8	0.9
GDP	2.6	-1.1	4.0	5.6	4.7	4.4
Extracted from Exhibit 2 of Health Affairs CMS Study

Projections for 2010 and Decade Until 2019

• The Medicare physician payment rate reduction will affect Medicare spending by 21.3% drop, affecting public spending which is estimated to register a slowing trend in its growth at 5.2% in 2010. However, public spend will accelerate from 6.3% in 2015 to 7.6% in 2019.
• National Health expenditure is also slowing down in 2010 to 3.9% but picks up towards 2014. Private spending is also estimated to slow from 7.2% in 2015 to 5.6% in 2019.
• Hospital spending growth is expected to grow particularly from public payors as Medicaid expenditure rises. Total hospital spending growth is projected to 3.7% in 2010. However, towards 2016, the projections depict acceleration of spending to 7%.
• Prescription drug spending trends are projected to accelerate at growth levels of 5.6% in 2011. But as generic competition increases for key brands, 2012 and 2013 may see price growth decelerating before picking up again, reaching 7.7% in 2019.

The full report can be accessed here.

Outlook and Implications

The CMS study has sought to outline the trend in healthcare expenditure over the next decade, picking up on key factors impacting the decline or growth. Primarily, factors affecting the trends are a recessionary climate and a growing shift in the patient population dynamics towards 2019. The challenging economic climate has brought on rising levels of unemployment, resulting in payor pressures. Medicaid enrolment has not surprisingly gone up and is expected to register some rise in the immediate future. Changes in the physician payment rates and higher cost-sharing requirements have added to payor constraints. While the national health expenditure has witnessed a recent rise in figures, a dip is expected in 2010 but will be back to higher growth expenditure levels until 2019.

The demographic change in the patient population depicts the addition of the aging of baby boomers who will boost enrolment in the Medicare programme in the short-to-medium term. The associated pressures on hospital and clinical services provided as well as potential financial constraints on the federal programme will manifest into a higher spending structure in the medium term.

Prescription drug spending levels are not surprisingly expected to witness intensifying growth in the medium-term period. But with drug pricing, encouragement to generics and associated rise in healthcare costs gaining immense scrutiny, the short-term spending will drop. Hospital services as a consequence will also mirror this trend in the decade up to 2019, with other factors such as payment rates and private spending power impacting it.

It is significant to note that the figures estimated for the decade do not take into account the healthcare reform legislation proposed. It is likely that the federal government will expand coverage under a combination of federal programmes and private insurance. The proposals so far have included providing incentives to small employers to increase coverage and an overhaul of the healthcare insurance market is expected including mandatory non-exclusion of patients with pre-existing disease conditions. Further to the announcement of the health reform legislation in the near term, the CMS's projections will need to be revised.

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