Health Spending Rose 3.9 Percent In 2011, Reaching $2.7 Trillion, CMS Says

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U.S. health care spending rose 3.9 percent in 2011, the same rate as in 2010 and 2009, as continued economic weakness depressed demand for health care services and increased the ranks of the uninsured, according to a report issued Jan. 7 by the Centers for Medicare & Medicaid Services.

CMS said the growth rate of health care spending over the past three years is the lowest recorded in the report's 52-year history. Health care spending totaled $2.7 trillion in 2011 and made up 17.9 percent of gross domestic product, the same percentage as in 2010 and 2009.

Health care spending in 2011 equaled $8,680 per person, CMS said in the report, published in the journal Health Affairs.

“Although the health sector tends to be somewhat insulated from overall recessions, this one had an immediate effect on health care spending,” the report said. “High levels of unemployment, a considerable reduction in the number of people with private health insurance, lower household income and assets, and financial uncertainty all had a substantial impact on consumers, providers, and sponsors of health care.”

More Uninsured.

The recession's impact on insurance enrollment was one of the biggest contributors to the slower growth in health care spending, CMS said.

From 2007 to 2010, enrollment in private health plans fell by 11.2 million, while Medicaid enrollment rose 7.5 million and the number of uninsured rose by 7 million, the agency said.

“People tend to seek less medical care when they lack coverage,” the report said.

Health and Human Services Secretary Kathleen Sebelius in a Jan. 7 blog post called the report “very good news” because it found health care cost growth had slowed and said several provisions in the health care reform law are already helping to slow costs, while more will do so in the future.

“The Affordable Care Act helps us to avoid the runaway growth in health care spending of the last decade, keep down costs for consumers, and ensure better health and better access to health care for millions of Americans,” Sebelius said.


“High levels of unemployment, a considerable reduction in the number of people with private health insurance, lower household income and assets, and financial uncertainty all had a substantial impact on consumers, providers, and sponsors of health care,” CMS said.  


CMS said there were some signs in 2011 that health care cost growth might soon accelerate, including more use of health care services and that enrollment in private health care coverage did not decline, as it had the three previous years.

But the agency added that economic growth was modest in 2011, raising “questions about whether the near future will hold the type of rebound in health care spending typically seen a few years after a downturn.”

As more people find jobs and get insured, however, health care utilization--and thus spending--could begin to rise at a faster rate, CMS Chief Actuary Richard Foster told reporters at a briefing on the report.

Possibly offsetting these growth factors would be actions taken by providers to improve their efficiency and outcomes, which could help control health care costs, Foster said.

The analysis also found that ACA has yet to make a big impact on the health care system because most of its major provisions will not be implemented until 2014. But the law has had some impact: For example, as many as 2.7 million people 26 and younger had been added to their parents' health plans by 2011 as allowed under ACA, CMS said.

Medicaid prescription drug rebates required under ACA also helped lower the growth in Medicaid prescription drug costs, the report stated.

Medicaid Spending Slows.

CMS said Medicaid spending grew more slowly in 2011, as states sought to control expenditures in response to the end of enhanced federal medical assistance percentages and tight state budgets. Medicaid spending rose 2.5 percent in 2011, down from 5.9 percent the previous year, the report said.

In contrast, Medicare spending rose 6.2 percent in 2011, up from 4.3 percent in 2010, according to CMS. Medicare spending rose faster in large part due to a one-time change in payment rates to nursing homes and increased used of physician services, the report said.

It also found that spending on hospital services grew 4.3 percent in 2011, down from 4.9 percent in 2010. The decreased rate of spending was caused by slower growth in hospital prices and in lower growth in the use of hospital services and less Medicaid spending on hospital care, the report said.

The number of inpatient hospital days fell by 1.1 percent in 2011, following a decline of 1.6 percent in 2010, the report said. Hospitals' outpatient visits ticked up only slightly in 2011, it added.

Spending growth in physician and clinical services rose faster in 2011 than in 2010, CMS said. Spending on physician services rose 4.3 percent in 2011, compared with 3.1 percent in 2010, the agency said. As with hospital spending, the growth in spending on physician services was because of increased use of services and medical intensity of the services, it added.

Prescription Drug Spending.

CMS said spending on prescription drugs rose 2.9 percent in 2011--reaching $263 billion--compared with a rise of 0.4 percent the previous year. The increase was due partly to price increases for brand-name and specialty drugs, according to the analysis. Increased spending on brand-name medications was offset somewhat by fewer prescriptions dispensed and an increased use of generics, the agency reported.

Insurers continue to encourage the use of generic medications via tiered benefit plans offering lower copayments for generics, while “an unprecedented number of 'blockbuster' drugs have lost patent protections in recent years, allowing more generic equivalents to come on the market,” CMS said.

Private Health Insurance.

Spending on private health insurance rose 3.8 percent in 2011, up from 3.4 percent in 2010, mostly due to an increase in enrollment in private plans of 0.5 percent, CMS said.

Out-of-pocket spending on health care for individuals rose 2.8 percent, up from 2.1 percent the previous year, as higher cost-sharing limits were implemented and more people enrolled in consumer-directed health plans, which often contain large deductibles, according to the report.

In 2011, 17 percent of covered workers were enrolled in a consumer-directed health plan, up from 8 percent in 2008, CMS said.

The report also found that spending for “personal health care goods and services” rose 3.7 percent in 2010 but 4.1 percent in 2011.

By Steve Teske  

An abstract of the report is at


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