Spending Growth on Medicare, Medicaid Slows as Budgets Are Cut

Spending on the U.S. government’s two big public health programs slowed in 2010 yet outlays still rose more than twice as fast as private health insurance expenditures because of the flagging economy, a federal report said.

The U.S. and states combined to spend $401 billion on Medicaid, the health program for the poor, an increase of 7.2 percent. Outlays for Medicare, the federal health program for the elderly and disabled, rose 5 percent to $525 billion. Spending on coverage from insurers such as UnitedHealth Group Inc. (UNH) totaled $848.7 billion, an increase of 2.4 percent.

Consumer spending on health care declined because of losses in private insurance coverage, lower household incomes and financial uncertainty about the future, according to the report from the U.S. Centers for Medicare and Medicaid Services. The health-care overhaul signed in March 2010 “had a minimal effect on spending” that year, said Ann Martin, an agency economist.

While Medicare accounted for 20 percent of total national health outlays in 2010, spending slowed because of cuts to private Medicare HMOs, the report showed. Medicaid made up 15 percent of the national health-care bill, and spending growth slowed in part because of provider rate cuts and freezes.

The recession that ended in June 2009 had a delayed effect that was felt throughout the health-care system, according to the report, published today in the journal Health Affairs. In 2010, there was record low growth in prescription drug spending and slower growth on hospital care, doctor visits and clinical tests.

Drug Spending

Spending on prescription drugs by manufacturers led by New York-based Pfizer Inc. (PFE) totaled $259 billion, a 1.2 percent increase over 2009. Fewer doctor visits and an increase in the use of generic medications led to the historically low growth, Martin said.

The growth in spending on private insurance premiums exceeded the gain in spending on benefits for the first time in seven years, the report showed. Spending on private health insurance premiums totaled $848.7 billion in 2010, a 2.4 percent increase over 2009, while spending on benefits totaled $746 billion, a 1.6 percent increase.

Total health spending and gross domestic product grew at comparatively similar rates, keeping health-care expenditure as a share of gross domestic product steady at 17.9 percent.

The health-care overhaul’s expansion of insurance coverage to as many as 32 million people will bring sharper increases later in this decade. National health spending will increase by 8.3 percent in 2014, when the most ambitious coverage expansions take effect, according to CMS projections.

The law will control the growth of health-care spending through fraud prevention, better coordination of care, disease prevention and ovenhauling insurance markets, said White House Deputy Chief of Staff Nancy-Ann DeParle in a posting on the White House blog that commented on the report.

To contact the reporter on this story: Anna Edney in Washington at aedney@bloomberg.net.

To contact the editor responsible for this story: Adriel Bettelheim at abettelheim@bloomberg.net.

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