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U.S. health cost growth slowed in 2011 but with signs of pickup

By David Morgan

WASHINGTON (Reuters) - U.S. healthcare spending rose at a historically low rate of 3.9 percent for the third consecutive year in 2011, but showed underlying signs of acceleration as the economy recovered from recession, the Obama administration said on Monday.

The report, released by the U.S. Centers for Medicare and Medicaid Services and published in the journal Health Affairs, said the sprawling national healthcare system totaled $2.7 trillion, or $8,680 per person. It accounted for 17.9 percent of gross domestic product, a level that has been steady since 2009.

The findings showed a rebound in personal healthcare spending that benefited physicians, clinics and drugmakers. Rising job and income growth helped stabilize the private insurance market after years of enrollment losses.

Hospital spending growth slowed. The growth of the Medicaid program for the poor dropped by more than half to 2.5 percent, as job growth slowed the rate of enrollment and cash-strapped states moved to contain costs by reducing benefits and provider payments, tightening eligibility and increasing costs to beneficiaries.

Medicare, the widely used program for the elderly and disabled, grew 6.2 percent with a rise in doctor visits and a one-time change in payment rates for skilled nursing facilities. Overall, the federal government's share of healthcare spending swelled to 28 percent in 2011, from 23 percent in 2010.

The figures provide an official snapshot of the scale and pace of healthcare spending as the U.S. government prepares for a dramatic expansion in health coverage under President Barack Obama's healthcare reform law, which is expected to boost spending and costs beginning in 2014 as more than 30 million uninsured Americans enter the system.

Rising healthcare costs are blamed by some for undercutting U.S. economic competitiveness as well as job and wage growth, and have begun to attract new attention from the administration and outside experts. The 3.9 percent advance in 2011 healthcare spending outstripped the 2.1 percent GDP inflation rate, a broad measure that takes in price changes across the economy.

2011 is the most recent year for which figures are available.

THE FUTURE IS NOT THE PAST

"The more coverage you have, the more services you use ... when you get as many as 30 million more people with coverage, you would expect them to use many more services and you would expect a higher cost," said Richard Foster, chief actuary at CMS, part of the U.S. Department of Health and Human Services.

"There is a growing amount of evidence that healthcare providers are getting it - getting that the future can't be the same way as the past," he added.

According to official administration projections, healthcare spending will surge by 7.4 percent to represent 18.2 percent of GDP in 2014, as millions of people acquire coverage through new subsidized online marketplaces and an expansion of Medicaid under the Patient Protection and Affordable Care Act.

But CMS analysts also say the law is expected to put downward pressure on spending later in the decade.

The results for 2011 were generally in line with forecasts issued last year. But the authors of Monday's report cast a question mark over future expectations, noting that economic, income and job growth in 2011 were less than might have been expected during an economic recovery.

"This fact raises questions about whether the near future will hold the type of rebound in healthcare spending typically seen a few years after a downturn," they wrote.

Monday's report showed Obama's reform law having a minimal effect on healthcare spending in 2011, although a new rule allowing adult children to remain on their parents' insurance plans until they turn 26 helped the private insurance market rebound by adding 2.7 million new beneficiaries to the rolls.

The law, known to Republican critics as "Obamacare" - a nickname the White House has also come to embrace - slowed the rate of growth in prescription drug prices for Medicare and Medicaid beneficiaries through extended rebates, discounts for senior citizens.

Spending growth for physician and clinical services climbed to 4.3 percent to $541.4 billion, and hospital spending growth dipped to the same rate for a total of $850.6 billion.

Prescription drug spending in retail outlets climbed 2.9 percent to $263 billion, versus a historically low growth rate of 0.4 percent in 2010.

Private insurers saw premiums increase 3.8 percent, partly as a result of the spread of low-premium, high-deductible insurance plans.

Out-of-pocket spending for consumers climbed 2.8 percent, accelerating from 2.1 percent in 2010.

(Editing by Matthew Lewis)

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