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Recession Scrambling Health Spending in U.S.

As more people lose their jobs and health insurance, they're turning to federal programs such as Medicaid, report says

TUESDAY, Feb. 24 (HealthDay News) -- Although millions of Americans have lost their jobs -- and their health insurance -- during the current recession, health care spending in the United States is expected to have its largest single-year increase in 2009.

That's the surprising conclusion of a report released Tuesday by the Centers for Medicare and Medicaid Services (CMS).

"Private spending [spending by private health insurance] is expected to slow in 2008-2009 to a 15-year low due to the impact of the recession" as more people lose their jobs and with them, their employer-based health insurance, CMS economist Andrea Sisko, one of the authors of the government report, said during a Monday teleconference. "Conversely, public spending growth is expected to accelerate through 2009, in part, due to increased Medicaid enrollment and expenditures, something that is typically seen in a recession."

Sisko noted the projections did not take into account the recently enacted $787 billion stimulus package or the 2010 federal budget proposal, to be unveiled Thursday by President Barack Obama, or any health care reforms that might be proposed by the new administration.

The report by economists from CMS, titled Health Spending Projections Through 2018: Recession Effects Add Uncertainty To The Outlook, was published in the Feb. 24 online edition of Health Affairs.

The release of the CMS report comes on the same day as a new report from the U.S. Institute of Medicine that calls for President Barack Obama and Congress to come up with solutions for the 45.7 million Americans not covered by health insurance and to find ways to stem the tide of growing health care costs.

And in a televised address Tuesday night, Obama plans to outline his goals for his first year in office, including his pledge to reform health care. The White House says the President believes that out-of-control costs are the main obstacle to providing insurance coverage for all.

The new CMS report seeks to project health care spending for the next 10 years.

For instance, by 2018 health care spending is projected to reach $4.4 trillion -- accounting for 20.3 percent of the U.S. gross domestic product (GDP). In 2008, health care spending reached 16.6 percent of GDP. In 2009, health care's share of GDP is expected to reach 17.6 percent of GDP, the largest one-year increase ever seen, the report said.

As spending by private health care insurance reaches a 15-year low as more people lose their jobs, spending by the federal and state governments is expected to grow from $1 trillion in 2008 to $1.2 trillion in 2009, an increase of 7.4 percent. This growth is being fueled by more people losing their jobs and then electing to sign up for Medicaid, the report authors said.

Once the recession starts to ease next year, there should be an upturn in both private and public health care spending, according to the report. Starting in 2010, private health care spending is expected to rise by 4.2 percent and increase to 6.1 percent in 2018, Sisko said.

Among the report's highlights:

  • Medicare spending grew 8.1 percent from 2007 to 2008, driven largely by growth in prescription drug spending as well as hospital, doctor and administrative costs.
  • In the near term, spending on prescription drugs is expected to slow, but then double between 2014 and 2018.
  • The recession is expected to slow the growth of out-of-pocket spending by consumers, a trend typically seen during an economic downturn. Also, growing Medicaid rolls will reduce out-of-pocket spending since these out-of-pocket costs are typically lower for Medicaid recipients.
  • Public spending is expected to rise as more baby boomers enroll in Medicare. That growth in public health care spending is projected to reach 7.2 percent a year by 2018 and account for more than half of all health care spending.
  • Nursing home spending is expected to increase to a 6.6 percent annual rate by 2018 as more people enroll in Medicare and Medicaid.

One expert thinks the CMS report reflects the true impact of the recession on health care.

"This just shows you that hard times affect people's ability to obtain health care," said Paul Precht, director for policy and communications at the Medicare Rights Center. "If it weren't for Medicaid, it would be a lot worse."

An estimated 14,000 Americans are losing their health insurance each day during the recession. In response, the Institute of Medicine report, America's Uninsured Crisis: Consequences for Health and Health Care, urges President Obama and Congress to immediately put into place programs to achieve health coverage for all Americans. The report also said costs need to be controlled to ensure that health care is affordable for everyone.

"Policymakers and the public can no longer presume that those without health insurance are getting the care they need through safety-net services such as charity care and emergency departments," Institute of Medicine Committee Chairman Lawrence S. Lewin, an executive consultant in health care policy and management, said in a statement. "The evidence clearly shows that lack of health insurance is hazardous to one's health, and the situation is getting worse because of the erosion of employment-based health coverage due to the current economic crisis. The nation must act now to solve the uninsurance problem."

More information

To read the full CMS report, visit Health Affairs.

SOURCES: Paul Precht, director, policy and communications, Medicare Rights Center, Washington, D.C.; Feb. 23, 2009, teleconference with Andrea Sisko, economist, Centers for Medicare and Medicaid Services, Baltimore; Feb. 24, 2009, Health Affairs; Feb. 24, 2009, Institute of Medicine, America's Uninsured Crisis: Consequences for Health and Health Care

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