Growth in U.S. Health Spending Remains Slow in 2010

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Growth in U.S. Health Spending Remains Slow in 2010
Health spending growth at historic lows for second consecutive year

U.S. health care spending experienced historically low rates of growth in 2009 and 2010 according to the annual report of national health expenditures (NHE) published in the January issue of the journal Health Affairs.

Analysts at the Centers for Medicare & Medicaid Services (CMS) report in the article that the increase in spending for 2009 represents the lowest rate of increase in the entire 51 year history of the NHE. The low rate of growth, the data show, reflects lower utilization in health care than in previous years. The report notes that U.S. health care spending grew only 3.9 percent in 2010, reaching $2.6 trillion or $8,402 per person, just 0.1 percentage point faster than in 2009.

In 2010, as health spending growth remained low, growth in U.S. economy as reflected in gross domestic product (GDP) (4.2 percent) rebounded. As such in 2010, the health spending share of the overall economy was unchanged at 17.9 percent. In the past, this share has increased, rising over time from 5.2 percent in 1960.

“We have worked hard since the passage of the Affordable Care Act in 2010 to lower health care cost growth,” said Marilyn Tavenner, acting CMS administrator. “We believe that the tools in health reform will help keep health care cost growth low while improving the value of care for consumers.”

Key findings from the new report include:

• Household health care spending equaled $725.5 billion in 2010 and represented 28 percent of total health spending, slightly lower than its 29 percent share in 2007. Growth in total private health insurance premiums slowed in 2010 to 2.4 percent from 2.6 percent in 2009, continuing a slowdown that began in 2003. Despite this deceleration, for the first time in seven years, the growth in premiums exceeded the growth in insurer spending on health care benefits, with the net cost of insurance increasing by 8.4 percent or $11.3 billion in 2010. Out-of-pocket spending by consumers increased 1.8 percent in 2010, accelerating from 0.2-percent growth in 2009.

• Retail prescription drug spending (10 percent of total health care spending) grew only 1.2 percent to $259.1 billion in 2010, a substantial slowdown from 5.1-percent growth in 2009 and the slowest rate of growth for prescription drug spending recorded in the NHE.

• The federal government financed 29 percent of the nation’s health care spending in 2010, an increase of six percentage points from its share in 2007 of 23 percent, and reached $742.7 billion. Part of that increase came from enhanced Federal matching funds for State Medicaid programs under the American Recovery & Reinvestment Act which expired in 2011. Medicare spending grew 5.0 percent in 2010, a deceleration from growth of 7.0 percent in 2009.

• Medicaid spending increased 7.2 percent in 2010, slowing from 8.9-percent growth in 2009.

• The state and local government share of total health spending declined from 18 percent in 2007 to 16 percent in 2010 and totaled $421.1 billion, in part due to the temporary assistance in the Recovery Act.

• Hospital spending, which accounted for roughly 30 percent of total health care spending, grew 4.9 percent to $814.0 billion in 2010, compared to growth of 6.4 percent in 2009.

• Growth in private health insurance spending for hospital services, which in 2010 accounted for 35 percent of all hospital care, slowed considerably in 2010.

• Physician and clinical services spending, which accounted for 20 percent of total health care spending, grew 2.5 percent to reach $515.5 billion in 2010, slowing from 3.3-percent growth in 2009.

• Private businesses financed $534.5 billion, or 21 percent of total health spending in 2010, down from a 23-percent share in 2007.

The NHE report, prepared annually by the Centers for Medicare & Medicaid Services’ (CMS) Office of the Actuary, summarizes recent trends in health care spending based on the most current data sources. Available historically since 1960, the NHE represents the official estimates of total health care spending in the United States and measures annual health spending by the types of goods and services delivered (hospital care, physician services, retail prescription drugs, etc.), by the programs and payers that pay for that care (private health insurance, Medicare, Medicaid, etc.), and by the sponsors who are ultimately responsible for financing that care (private business, households, and governments).

Information in this report can be accessed at the following web location:
http://www.cms.gov/NationalHealthExpendData/02_NationalHealthAccountsHistorical.asp#TopOfPage

Today's Datapoint

14.5% … of the population in Washington state (at least 1 million people) now lack health coverage, according to the state’s Insurance Commissioner Mike Kreidler (D), who called it “a grim milestone.”

Quote of the Day

“If we can make [insurance exchanges] easy to use, one-stop shopping we will get greater enrollment. If Medicaid and the exchanges are harmonized, [enrollees] will be able to enter the system with a single application. But these systems are going to have to work flawlessly and at scale.”
— John Kaelin, vice president for health reform at UnitedHealth Group, told AIS’s Health Plan Week.

Quote of the Day

“One of the aims of the reform law was to create some uniformity [of health benefits], which would allow for another important goal…portability. This [Dec. 16 CMS bulletin that gives states great flexibility over 'essential benefits'] reinforces the existing fragmented system. This is a return to the status quo…with a reset.”
— Kevin Wrege, regional director of state affairs for the industry-backed Council for Affordable Health Insurance, told AIS’s Health Plan Week.

HEALTHCARE PROFESSIONALS SELECTED FOR THE NEW INNOVATION ADVISORS PROGRAM TO IMPROVE CARE FOR PATIENTS

DEPARTMENT OF HEALTH & HUMAN SERVICES
Centers for Medicare & Medicaid Services
Room 352-G
200 Independence Avenue, SW
Washington, DC 20201
Office of Media Affairs

HEALTHCARE PROFESSIONALS SELECTED FOR THE NEW INNOVATION ADVISORS PROGRAM TO IMPROVE CARE FOR PATIENTS

The Centers for Medicare and Medicaid Services (CMS) today announced that it has selected 73 individuals from 27 States and the District of Columbia for its Innovation Advisors program.

A list of Innovation Advisors can be found at http://www.cms.gov/apps/media/press/factsheet.asp?Counter=4240.

The initiative, launched by the CMS Innovation Center in October 2011, will help health professionals deepen skills that will drive improvements to patient care and reduce costs. After an initial orientation phase, Innovation Advisors will work with the CMS Innovation Center to test new models of care delivery in their own organizations and communities. They will also create partnerships to find new ideas that work and share them regionally and across the United States.

Funding for this initiative was made possible by the Affordable Care Act.
“There has been an incredible groundswell of interest in becoming an Innovation Advisor. It’s clear that doctors, hospitals and health care providers are enthusiastic about implementing the Affordable Care Act and strengthening our health care system,” said CMS Acting Administrator Marilyn Tavenner.

The 73 individuals were selected from 920 applications through a competitive process, and include clinicians, allied health professionals, health administrators and others. By attending in-person meetings as well as remote sessions to expand their skills and applying what they learn, the Advisors will be able to deepen their knowledge in health care economics and finance, population health, systems analysis, and operations research.

“We’re looking to these Innovation Advisors to be our partners—we want them to discover and generate new ideas that will work and help us bring them to every corner of the United States,” said CMS Innovation Center Director Rick Gilfillan, M.D.

Among other duties, the Advisors will be expected to support the Innovation Center in testing new models of care delivery, to form partnerships with local organizations to drive delivery system reform, and to improve their own health systems so their communities will have better health and better care at a lower cost.

Each Innovation Advisor’s home organization will receive a stipend of up to $20,000. The stipend will support an individual’s activities while serving as an Innovation Advisor.

More information about the Innovation Advisors Program, including a fact sheet and list of participants and their home organization, can be found at: http://innovations.cms.gov/initiatives/innovation-advisors/index.html.

The future of Medicare up for debate

Premium Health News Service Tribune Media Services
December 21, 2011
Used to be, it was politically dangerous to try to tinker with Medicare. Former Arizona Governor Bruce Babbitt lost the support of key Democrats in his bid for the 1988 presidential nomination when he talked about means-testing Medicare and other entitlements. And the 1988 Medicare Catastrophic Coverage Act, which would have significantly expanded coverage, was repealed soon after passage. The reason: Terrified lawmakers capitulated to furious higher-income seniors who were to be charged higher premiums than other beneficiaries.

Lawmakers and politicians don't seem quite as scared these days. Sure, seniors may still be shouting "Don't Touch My Medicare!" at town hall meetings. But as the federal budget deficit widens, the White House and congressional lawmakers in both parties are becoming bolder in calling for cutbacks in the popular health care program for the elderly. Some recommendations for Medicare cuts that would have been considered heresy a few years ago are now moving to the center of public debate.

Many of these proposals would shift more of the cost burden from the federal government on to beneficiaries. Workers who are approaching retirement -- and many current retirees -- should plan to sock away more money for future health care costs.

The impetus for this shift: Growing Medicare costs, which will explode as baby boomers become eligible for the program (the first of the boomers enrolled this year). According to the 2011 Medicare trustees report, the hospital trust fund, which is financed by payroll taxes, will be exhausted by 2024, five years earlier than projected the year before. Meanwhile, the costs of Part B, which pays for outpatient services, and Part D, the prescription-drug program -- both financed by beneficiary premiums and the federal government -- are consuming an ever-increasing share of the economy, according to the trustees.

Dallas Salisbury, president of the nonpartisan Employee Benefit Research Institute, says that "the federal government is proving to be the last to get in line" behind both the private sector and the states in reining in health care spending. Companies and many state governments, he says, have been cutting benefits and forcing beneficiaries to pay more.

Salisbury compares the political environment now to 1983, when Congress ended up following many recommendations of a bipartisan national commission on Social Security. "Everyone became adults suddenly. They said, 'Nobody wants to do this, but we don't have that option, so let's march down that aisle together,'" Salisbury recalls.

Signs of growing bipartisanship on Medicare are recommendations by two deficit-cutting commissions in the past year. A year ago, a distinguished panel of budget experts -- led by Alice Rivlin, budget chief in the Clinton White House, and former Republican Senator Pete Domenici -- proposed significant cuts for Medicare. Soon after, a congressional commission, headed up by Clinton White House Chief of Staff Erskine Bowles and former Republican Senator Alan Simpson, issued its own recommendations for benefit cuts and premium hikes. The four testified Nov. 1 before the congressional "super committee."

Here are some Medicare ideas gaining traction among policymakers:

1. Limiting Medigap coverage. The Simpson-Bowles commission would prohibit Medigap plans, which help cover out-of-pocket costs not covered by basic Medicare, from covering the first $500 of an enrollee's cost-sharing liabilities and limit coverage to 50 percent of the next $5,000 in Medicare cost-sharing. Supporters note that Medigap plans lead to excessive use of health care. President Obama has proposed a surcharge on Medigap plans bought by new beneficiaries.

2. Higher Part B and Part D premiums. Currently, Medicare Part B premiums cover 25 percent of total outpatient costs, with the federal government picking up the rest. The Rivlin-Domenici plan would gradually raise the beneficiaries' share to 35 percent of costs.

About 5 percent of higher-income beneficiaries already pay higher premiums for Part B and for Part D. Obama has proposed extending the freeze on indexing income thresholds for inflation until 25 percent of beneficiaries pay the higher premiums.

3. Charging for home health care. Currently, beneficiaries pay nothing for Medicare home health care. Obama would impose a $100 co-payment for each episode, which is defined as five or more home health care visits not preceded by a stay in a hospital or a skilled nursing home.

4. Raising the Medicare eligibility age from 65 to 67. Legislation by Independent Senator Joe Lieberman of Connecticut and Republican Senator Tom Coburn of Oklahoma would raise the age gradually, by two months every year beginning with people born in 1949. Some experts believe that this will become more feasible when insurance exchanges under health care reform go into effect, because people in their 60s with preexisting conditions should have an easier time finding affordable insurance before Medicare kicks in.

5. Providing vouchers. The Rivlin-Domenici plan would, in effect, provide vouchers, or "premium support," which beneficiaries could use to enroll either in traditional fee-for-service Medicare or in a competing private insurance plan. The fixed premium-support payment would grow at a certain rate each year. If costs of traditional Medicare grow faster, beneficiaries who want to stay in the fee-for-service program would have to pay more.

Whether lawmakers will approve any of these specific proposals is far from clear. One thing is certain, though: Future beneficiaries will pay more out-of-pocket for their health care. As it stands now, a couple both age 65 living to average life expectancy could need as much as $295,000 to cover premiums for health insurance coverage and out-of-pocket expenses during retirement, according to Salisbury's group. A couple who lives to age 95 could need as much as $550,000. And these numbers do not include long-term-care costs.

The take-home message: You will need to set aside a lot of money to pay for your health care costs during retirement.

Analysts: Most Medicare Advantage Plans to Get Quality Bonuses

By Allison Bell

About 91% of Medicare Advantage plans participating in a 3-year federal demonstration project will get some quality bonus money in 2012, and participating plans with ratings of 4 stars or more on a 5-star scale will split about $1.1 billion in bonus money.

Gretchen Jacobson and other analysts have reported those figures in a review released by the Henry J. Kaiser Family Foundation, Menlo Park, Calif. The analysts look at how the Medicare Advantage star rating and bonus payment program might work in the coming year.

The Centers for Medicare & Medicaid Services (CMS) developed the star rating system in an effort to give Medicare beneficiaries some information about plan quality, and Congress included a provision in the Patient Protection and Affordable Care Act of 2010 (PPACA) that requires CMS to use quality information when allocating funding to Medicare Advantage plan providers starting in 2012.

CMS uses quality survey data and plan administrative data to assign star ratings.

Laws now on the books call for CMS to cut total Medicare Advantage payments $6 billion from the level originally expected for 2012. The 2012 quality bonus payments should make up for about $3.1 billion of that reduction in funding, the analysts estimate.

CMS officials say they will not make any bonus payments to the 9% of plans with ratings of 2 stars or lower. Plans with 3-star or 3.5-star ratings will get about $2 billion in bonus payments. Plans with 4-star or 5-star ratings will get more quality bonus payments on a per-plan basis than plans with lower ratings.

Plans will get an average of $281 in bonus payments per enrollee. Nonprofit plans will get an average of $347 per enrollee, and for-profit plans will get an average of $255 per enrollee. The $93 difference exists because the nonprofit plans tend to have higher star ratings, the analysts say.

Nonprofit plans in the demonstration project have an average rating of 4.09 stars, and the for-profit plans have an average rating of 3.22 stars, the analysts say.