Health Care Costs and Health Care Reform and Health Care & Life Sciences

Health care spending slows in most sectors, but government spending increases

January 9, 2010

Health spending is growing slower than it has in 48 years, but whether health care reform will continue the trend is the subject of debate here and around the country.

Health spending grew 4.4 percent in 2008, according to an annual analysis of the entire health care sector by the federal Centers for Medicare and Medicaid Services. Spending grew 6 percent in 2007.

Health care spending totaled $2.3 billion in 2008, or one-sixth of the national economy.

The news is good, but everyone agrees more cuts are needed. Many critics of the health reform bills pending in Congress say they do too little to reduce health care costs in the future.

The bills would create an independent commission to suggest cost-saving measures Congress would have to approve or reject without making tweaks. They would create various pilot programs within the Medicare program to encourage cost-saving innovations by doctors and hospitals.

Those modest measures won’t fix out-of-control health care spending, acknowledged Eric Wright, director of the Center for Health Policy at IUPUI. But he said they are necessary first steps in a process he thinks will cut costs.

“It’s like navigating the rapids,” he said. “You can’t figure out where your next turn is going to be until you get around the first turn.”

Right now, the health burden is most acute for governments. The federal government spent a whopping 36 percent of tax receipts on health care in 2008—up from 21 percent during the previous recession in 2001.

By contrast, private-household spending on health care rose to 5.9 percent of income in 2008 from 5.3 percent in 2001. Businesses spent 7.9 percent of total payroll on health benefits in 2008, up from 7.5 percent in 2001.

In 2008, federal government spending on health care spiked 10.4 percent, compared with growth rates of 1.2 percent for private businesses and 4.3 percent for private households.

State and local governments are spending, on average, 24 percent of their budgets on health care. Their spending rose 3.4 percent in 2008.

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