Trillions and Trillions

The Centers for Medicare and Medicaid Services (CMS) actuaries have released their annual report on national health care spending. First, I have bad news. This work, which was paid for by you, the taxpayers, and conducted by federal employees on behalf of your federal government, is not available for you to read unless you happen to subscribe to the journal Health Affairs, which costs $122 a year. CMS issued a press release about this, and then directed people to Health Affairs if they want to read it. So you rabble, wretched refuse, and little people can read the abstract only, here. But you'll have to depend on me to tell you what it actually says.

Oh, and now I suppose you were expecting the good news? Well, the article title, and all of the news coverage that depends on transcription of the CMS press release, emphasizes that spending "slowed" from 2003 to 2004. Actually, it increased by more than the overall growth of the economy, as it always does, but just not by much as it has in the past couple of years.*

Specifically, what they call National Health Expenditures (NHE -- which doesn't include public health, not that it would matter because it's so little) constituted 7.2% of GDP in 1970, 9.1% in 1980, 13.8% from 1993 to 2000 (the era of managed care, which temporarily restrained spending), and 16% in 2004. That's called "slowing" because it's only a .1% increase from 2003. The reason for the "slowing" (by which they actually mean reduced acceleration) is mostly that insurers are trying to steer patients and doctors to more generic and fewer brand name drugs; and the collapse of the market for expensive Cox-2 inhibitors. Otherwise, however, spending on hospitals and physician services just kept on rising without stopping for breath. By the way, it's just a number, but the total NHE in 2004 was $1,877,600,000,000. Yup, that's almost $2 trillion, which we should easily have hit in 2005.

Of this, the share spent by government at all levels was $847,300,000,000, or a somewhat less than half. However, the rate of government spending increased by more -- 8.2% -- than the increase in private spending -- 7.6%. But this 8.2% was a composite of the increase in Medicare spending (8.9%) federal Medicaid spending (6.6%) other federal (9.1% -- which includes the Supplemental Children's Health Insurance Program, VA and military, federal employees, etc.), state Medicaid (10%) and other state and local (6.1%), so as you can see the share of health care borne by various programs and units of government is shifting.

As for where the money is being spent, as I said, growth in spending on drugs slowed a bit, while spending on hospital care accelerated, to an 8.6% increase, and spending on physician service also acclerated, to a 9% increase. This is mostly because people are using more services, and more costly services. And by the way, spending on nursing home care grew much more slowly, at 4.3%, which helped contain what would have otherwise been a larger increase in overall Medicaid spending. (Medicaid pays for about 40% of all Skilled Nursing Facility costs.)

So the aging of the population contributes only a small amount to these inexorable increases. The main reasons? New medical treatments -- once they're available, everybody (with insurance) has to have them; rising prices; and increasing utilization. The reasons for the latter aren't entirely clear but the growing chronic disease burden -- of diabetes and heart disease, in particular -- probably has something to do with it.

As insurance premiums rise, more and more workers are forced off the roles of the insured. States have responded to the increasing burden of Medicaid by restricting eligibility and services as well. So the more we spend, the more inequality we create. Fewer and fewer people are the beneficiaries (or the victims, in some cases) of more and more spending. It has to end somewhere, but that end is not yet in sight.

*They aren't terribly specific about their data sources, but IMHO these estimates are pretty accurate.

Addendum: Here's a good link from our friend Keeping Eyes Open, which discusses the growth of health care spending in context, along with some recommendations for what to do about it.