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Recession-Inspired Slowdown In Health Spending Bolsters Case For Health Care Reform

A new report from the Center on Medicare and Medicaid Studies (CMS) finds that the economic recession has accomplished what generations of lawmakers have only dreamed of — slowing the growth of national health expenditures. As Americans lose their jobs and employer-sponsored health care coverage, thousands are turning to government-run health care programs like Medicaid or (if they can afford it) the extended COBRA coverage. Others simply forgo needed treatments, prescriptions and doctor visits. “The data show a slowdown in health spending across the board — but at the same time, a shift in the composition of spending, including from private to public access,” the report found:

Amid one of the worst economic recession in recent history, U.S. health spending grew 4.4 percent in 2008, its slowest rate in nearly 50 years. However, overall health spending, which reached $2.3 trillion in 2008 — $7,681 per person — still increased faster than the overall economy…Health spending constituted 16.2 percent of the Gross Domestic Product (GDP), increasing from 15.9 percent the year before.

In other words, health care costs are decreasing for all the wrong reasons. After all, this dip in spending did not result from some shrewd new efficiency measures or payment reform mechanisms. Policy makers have not implemented reforms that decreased the utilization of unnecessary (and in many cases harmful) care or reduced fraud and waste from the system. Rather, Americans are spending less on health care because they have less money to spend overall. Health expenditures are still increasing faster than the overall economy and are projected to reach 25% by 2025 — an unsustainable percentage of spending that would leave some 50 million Americans uninsured and millions more underinsured.

The report signifies the importance of adequately funding public programs, offering uninsured Americans more affordable coverage, and improving the efficiency of health care delivery. As Jeanne Lambrew — Director, HHS Office of Health Reform — has pointed out in Congressional testimony, public programs “fill certain cracks in the system.” “Altogether, these programs insure over one-fourth of the population and finance 45 percent of the health system, including the safety net programs that directly pay for services for vulnerable populations.” The Senate bill would strengthen public health, increase coverage, and bring down health care costs by eliminating waste, investing in payment reform, and tackling overtreatment (hopefully offsetting the increases in utilization of the newly insured). It would start to bend the cost curve over the long term by transforming the system, not pricing millions out of coverage.

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The most conservative government estimates conclude that the Senate health bill would reduce national health care expenditures by at least 0.3% by 2019. Had the nation adopted comprehensive reform earlier, today’s national expenditures would be even lower. A recent report from the Commonwealth Fund, for instance, points out that “If President Nixon’s health reform plans had been enacted in 1975 and slowed the annual rate of spending by 1.5 percentage points a year, today we would be spending 10.7 percent of GDP on health care….Even if Nixon reforms had slowed spending growth by “only” 1 percentage point a year, health spending as a percent of GDP would have been $1.9 trillion in 2010, or 12.7 percent of GDP — a savings of 5 percent of GDP.” Similarly, “Even if we had acted as late as 1995 under President Clinton, health spending in 2010 would be $2.1 trillion, or 14.2 percent of GDP.”