Jan. 7 (Bloomberg) -- The U.S. recession remained a drag on health-care spending three years after it ended as a net of 9.4 million people lost private insurance coverage before key provisions of Obamacare had begun, a government report showed.
Spending on hospitals, doctors, drugs and other health-care services rose 3.7 percent to $2.8 trillion in 2012, or about 17.2 percent of gross domestic product, actuaries at the Centers for Medicare and Medicaid Services said in a report published yesterday in the journal Health Affairs. Growth was 6.3 percent at the end of 2007, when the U.S. entered an 18-month recession.
The 2010 Patient Protection and Affordable Care Act’s largest health-care expansions didn’t begin until this year, including private insurance for about 2.1 million new people and expanded Medicaid coverage for others. CMS actuaries have said spending should jump by 6.1 percent in 2014 as a result.
“Expanded coverage is going to cause spending to go up,” Charles Roehrig, the director of the Altarum Institute’s Center for Sustainable Health Spending in Ann Arbor, Michigan, which studies cost growth, said in a phone interview.
Prescription drugs and nursing home costs had led the slowdown. Blockbuster drugs including Pfizer Inc.’s Lipitor, Sanofi’s Plavix and Merck & Co.’s Singulair lost patent protection in late 2011 and 2012, causing retail prescription prices to increase 0.4 percent in 2012, the actuaries said.
About three-quarters of U.S. prescriptions cost $10 or less in 2012, Anne Martin, an economist in the agency’s actuary office, told reporters at a news conference.
While drugmakers dealt with a pullback, hospitals and physicians’ offices grew faster in 2012 than a year earlier. Hospitals consumed more health-care dollars than any other industry, increasing revenue 4.9 percent to $882 billion. Prices increased 2.5 percent, and the higher utilization and intensity of hospital services contributed to the rest.
No developed nation spends more than the U.S. on health care, either in nominal terms or as a proportion of gross domestic product, and policy makers are struggling to find ways to keep costs in check. Health-care costs “skyrocketed” prior to Obama taking office in 2009, and the Affordable Care Act “has helped stop that trend,” Jeanne Lambrew, deputy assistant to the president for health policy, said in a blog post.
“While there is a debate about how much the Affordable Care Act has contributed to this health cost slowdown, there is no doubt that it reduced Medicare spending growth, and most experts believe that Medicare savings spill over into the private sector,” Lambrew said in the blog.
The Affordable Care Act is estimated to have added about $5 billion in additional spending from 2010 to 2012, Martin of CMS said, based on projections from September. With total health spending of more than $8 trillion over the same period, that means the health law was responsible for less than 0.1 percent, she said in an e-mail.
The $1.4 trillion law known as Obamacare requires most Americans to obtain health insurance by April or pay a penalty of as much as 1 percent of their income. To make finding coverage easier and control insurance costs, the law set up government-run exchanges in each state where most consumers can buy plans from private companies with the help of tax credits.
The government is seeking to get about 7 million people to sign up for exchange plans by March 31.
Medicare, the U.S. health program for disabled people and those 65 and older, accounted for about 20 percent of spending in 2012, and Medicaid, the state-run program for the poor, 15 percent. Spending on Medicaid is expected to rise as the law expanded the program in at least half the U.S. states to cover more people earning close to poverty wages.
Some policies in the health law, including a requirement that children younger than age 26 be allowed to remain on their parents’ health plans, have raised spending, while other provisions including cuts to hospital Medicare payments have offset the increase.
Private health insurers including UnitedHealth Group Inc. and WellPoint Inc. paid about 33 percent of the nation’s medical bills, more than any other payer. Americans spent about $917 billion on insurance premiums, 3.2 percent more than a year earlier. Insurers received about $110 billion, or about 12 percent of premiums, the actuaries said.
Plans with high deductibles -- at least $1,200 for an individual -- were carried by 31 percent of Americans under age 65, the actuaries said. The higher out-of-pocket costs associated with those plans contributed to less total spending as unemployment rose and wages stagnated.
“Declining enrollment was a major factor in the slow growth in overall private health insurance spending in the past several years,” the actuaries said in their report.
Health-care spending has been braking since shortly after the turn of the century, when the growth rate peaked at 9.7 percent in 2003. It had slowed to 6.5 percent by 2006.
“It takes several years for recessionary effects to work their way through the health sector and the health-care industry,” Aaron Catlin, deputy director of the CMS actuary’s National Health Statistics Group, said at the news conference.
Consumers seemed to have experienced a “psychological change” during the recession that ended in 2009 and reduced their use of health services, even when they had insurance, said Joe Antos, a health economist at the American Enterprise Institute in Washington who advises the Congressional Budget Office.
“The recession really knocked the heck out of all consumption,” he said in a phone interview. “In one sense it’s good news we’re continuing to see, at least through 2012, slow growth in health spending. On the other hand, I think we should be concerned why that is the case.”
--Editors: Romaine Bostick, Andrew Pollack