The ACP Advocate Blog

by Bob Doherty

Tuesday, January 5, 2010

Government spending on health outpaces private sources

Much of the debate about the health reform has been on whether or not it will lead to government-run health care. But the fact is that the government's share of health care spending already is growing at a faster rate than private spending, a trend accelerated by the recent economic recession.

A new report from Medicare's actuaries, published in the journal Health Affairs, found that "Federal government spending for health services and supplies increased 10.4 percent in 2008 . . . and accounted for almost 36 percent of federal receipts, up considerably from 28 percent in 2007. By comparison, spending for health care by private businesses grew just 1.2 percent in 2008, in part because of a drop in the proportion of employer-sponsored insurance premiums paid for by employers" while "health care spending by households grew 4.3 percent in 2008, a deceleration from 5.9 percent growth in 2007" but still more than the adjusted personal income growth of 2.7%.

The current economic recession, the authors say, had two major impacts on health spending:

* "The economic stimulus bill shifted more federal dollars to Medicaid, causing total Medicaid spending to rise to 58.5 percent in 2008, compared with 56.5 percent in 2007, and there was slower growth in personal health care paid for by private sources of funds, which increased just 2.8 percent in 2008, the lowest rate since the mid-1990s" and
* "The low rate of private spending growth in 2008 occurred as personal income growth slowed, employment fell, and enrollment in private health insurance plans declined."

Overall, U.S. health care spending growth slowed to 4.4% in 2008, "the slowest rate of growth over the past forty-eight years." Yet despite the slow-down, health spending increases "continue to outpace growth in the resources available to pay for it" as the share of gross domestic product (GDP) devoted to health care increased from 15.9 percent in 2007 to 16.2 percent in 2008.

Other study highlights: In 2008 total Medicare spending grew 8.6 percent, reaching $469.2 billion, accelerating from 7.1 percent growth in 2007 mainly attributable to "increased fee-for-service (FFS) spending for hospitals and a further shift in enrollment to Medicare Advantage plans, which have higher average Medicare payments per beneficiary than FFS." National health expenditures, public and private combined, on physician services alone "increased 4.7 percent in 2008, a deceleration from 5.5 percent growth in 2007" and "retail prescription drug spending growth decelerated to 3.2 percent, reflecting the continuation of a slowing trend that began in 2000."

Critics of the current health reform effort often say that they are fighting to keep the federal government out of health care. But the fact is that the government's role in paying for health care has been growing for decades. In 1970, the federal government's share of total national health expenditures (all sources, public and private combined) was approximately 23.6%. The federal share was 28.2% in 1980; 30.8% in 2000, 33.7% in 2007, and 35% in 2008. (See this table for a detailed breakdown of annual spending on health by source of funds.) During much of this time Republicans controlled the White House and/or one or both chambers of Congress.

Enactment of health reform will surely expand the government's role in financing health care even more, but the notion that this fight is over "keeping government out of health care" is, well, out-of-touch with the simple reality that government's role in paying for health care has been steadily increasing over the past forty years, with the support of both political parties and, it seems, the American public.

Today's question: What do these estimates say to you?

4 Comments :

Blogger PCP said...

Reading this article, one would be forgiven for getting the impression, that the author believes that an increasing role for Gov't in health care is a good thing.
It is in truth a tragic development.
It means a number of things. That there is ongoing and increasing cost shifting. It means that our public is increasingly less able to afford care ie indigent. It means that Gov't is only too happy to spend money that it does not have by increasingly becoming more indebted.
I am not clear why any of these could be construed as good developments for our nation.
The worst part out of all this is that the American public is not only oblivious to this trend, but at an individual level increasingly looking to Gov't for these benefits, thereby being excused from their own personal responsibilities. This trend will not lead to anything good in the future. The Gov't appears more and more willing to play Robin hood, in so doing killing off productive private enterprise.
Another interesting number on the data for health spending last year, was that private employer spending was the slowest grower. Yes, It did not keep growth with Gov't spending, but it also did not keep growth with private out of pocket spending, or even the CPI. In other words, forget growth, employers are cutting benefits. Is this a sign that employers will shirk their responsibilities once the Gov't so eagerly delves into an expanded role in health care? Certainly food for thought and everyone can come to their own conclusion on that. I suspect the answer will be instructive. Many employers IMHO having shed pension obligations, and other benefits over the years, would be thrilled to hand over this hot potato to Gov't. I am certain that most Americans intuitively know that is not in their best interest.
As far as our profession goes. It will mean an acceleration of cost pressures, it will mean declining incomes, more workforce shortages, increased red tape and regulation, and overall more professional dissatisfaction.

January 5, 2010 at 9:28 PM  
Blogger Jay Larson MD said...

In a system as complex as health care, it is impossible to dissect out the etiologies for trends. Why is the government having to finance more of the health care system? Perhaps, it is the unwilliness of the system segments to change.

I wonder what our health care system would be like if it was entirely private sector administered? No government involvement what so ever.

What would happen to all the people who the government currently covers? This is not a group of individuals that have associated low health care costs... low income, elderly, disabled, and military personel.

Personally, these are not people I would like to see thrown to the CEO wolves and corporate America.

January 6, 2010 at 9:52 AM  
Blogger Rich Neubauer MD said...

From my point of view the biggest tragedy in America’s approach to medical care has been that our method of rationing is totally irrational. At least in the past, we seem totally willing to ration by virtue of ability to pay (insurance status being a surrogate for ability to pay, since it is only a very small segment of our population that could pay the outrageous price of actually being ill in this society). We delude ourselves by thinking that the ability to walk into an ED and get an EMTALA mandated evaluation equates with access to care.

It is true that in the current debate the public has conveniently overlooked that the government already pays a huge part of the overall health care expenditures. The mantra “keep the government out of my Medicare” echoes strongly here. Government has and will continue to be a major driver of how health care dollars are spent independent of whether we have health care reform.

In my experience, both as a patient, physician, and citizen, insurance companies and their administrators are more cruel, arbitrary and heartless than government in their approach to ill people who actually need their services. It is one of the central ironies of the health care debate that the public’s perception is often out of synch with reality and their best interests.

January 6, 2010 at 11:48 AM  
Blogger Harrison said...

The reaction to numbers like these from physicians is often, in my experience, a tendency to bemoan regulation and government involvement and of course the evil legal profession.
And with that reaction we continue to not be a serious part of the discussion. We cannot take positions that deviate so drastically from reality and use them as our starting points.

The reality is that we have Medicare and Medicaid. They were put in place exactly because the private system was failing too many people of modest means.
We cannot make an argument to return to a failed system dominated by the private sector just because it reminds us of a time when our profession carried more prestige, when there is historic evidence that it will not work.
We are getting parts of the currently proposed health care bill because there is another part of our society that is being failed by the private sector, and it is increasing.
And then there is the worsening problem with health care inflation.
Nobody wants to go after that seriously. That may mean hard decisions that won't help with re-election bids.
But it wouldn't work if it was out of the realm of politics either, because the model means greater profits for doing more, and not less.
And the insurance industry business model, which does aim for doing less, makes more profits by doing less and nobody is going to like that either.

The answer is in our offices.
and it involves hard work.
And perhaps hard political decisions.

And it is a complex problem and there will not be a simple solution that is right. It will be a complex solution.

Harrison

January 6, 2010 at 1:04 PM  

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Bob Doherty is Senior Vice President, American College of Physicians Government Affairs and Public Policy; Author of the ACP Advocate Blog

Email Bob Doherty: TheACPAdvocateblog@acponline.org.

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