Health costs reach record, government report shows

WASHINGTON — The government estimates that health care consumed a record 17.3 percent of all spending in the U.S. economy last year, or roughly $2.5 trillion, according to a report to be released Thursday.

This was $134 billion more than the previous year, when health care consumed 16.2 percent of the gross domestic product — the total market value of all goods and services produced. It also represented the single largest one-year jump in health-care spending as a share of GDP since the government started keeping such records 50 years ago.

The annual report by independent actuaries at the federal Centers for Medicare and Medicaid Services (CMS) also projected that the country could mark another milestone as early as next year, when the government picks up more than half of the nation's health-care tab for the first time.

The tipping point likely will come this year, when Congress is supposed to allow Medicare to cut doctor fees by 20 percent, as required by a 1990s budget law. But lawmakers routinely have waived such cuts, and they're not likely to allow them in an election year.

Government programs — mainly Medicare and Medicaid — paid $1.2 trillion in 2009, while employer health insurance and various private sources covered $1.3 trillion, the report estimated.

The rise in current costs, driven in part by surging spending in Medicare and Medicaid, and bleak projections for the future do not take into account changes that may come if Democrats revive their health-care overhaul legislation. The report appears likely to fuel further debate about the health bills now stalled in Congress.

Congressional Democrats want to move forward with the legislation despite the loss of a Massachusetts Senate seat that cost them undisputed control of the legislative agenda. Republicans, however, have rejected President Obama's approach as a top-down, big-government solution.

In the absence of change, the report raises a grim prospect — a health-care system consuming an ever-greater and potentially unsustainable share of the economy even as private health coverage lags.

CMS last year estimated that government spending on health care would not overtake private spending until 2016. But the shift to a health-care sector dominated by government is being speeded up by the deep recession and the aging of baby boomers, millions of whom soon will start signing up for Medicare.

"The health system is hurting, and we are seeing that in these numbers," said Karen Davis, president of the Commonwealth Fund, an authority on health-care policy.

Federal and state spending on Medicaid, the nation's primary health-insurance program for low-income Americans, increased nearly 10 percent in 2009, according to the report. Medicare spending, meanwhile, was up a little more than 8 percent.

Inefficiency is becoming a particularly acute problem for state and federal governments. Obama and many health-care experts have argued that reshaping the health-care system ultimately will make it more efficient, even if overall health spending continues to increase — a claim Republicans dispute.

Fueled by new technology, an aging population, rising incomes and other changes, medical spending has been consuming a larger and larger share of the economy for years, jumping from about 5 percent of GDP in 1960 to nearly 14 percent in 2000.

But the recession that began in 2007 accelerated that trend, as the economy contracted while health-care spending continued to increase, according to CMS.

Even now, with the economy slowly recovering, the government expects that the growth of health-care spending will outpace the expansion of the economy. By 2020, 1 of every 5 dollars spent in the United States is expected to go to health care.

Some economists believe this is not necessarily a problem, as the health-care industry can provide good jobs and improve health and productivity.

But there is growing concern that up to one-third of the medical care delivered in the United States does not help patients.

"Are we getting value for dollar? That is the question," said Len Nichols, who directs the Health Policy Program at the centrist New America Foundation. "If you believe that so much medical care is unnecessary, as I do, then it is criminal that we are spending so much."

Stuart Butler, vice president for domestic and economic policy at the conservative Heritage Foundation, said the numbers illustrate the need for more aggressive action to curb spending.

"The only way to do this is to simply spend less," Butler said, warning that the health bills being pushed on Capitol Hill do the opposite.

CMS officials noted that health-care spending has been increasing even as the number of Americans without health insurance is growing, another sign of problems with the system.

"With higher unemployment," said Richard Foster, chief actuary, "people lose their jobs [and] many of them lose their health-care coverage in the process. And under current law, they don't have much to fall back on."

Foster said the report indicated that two of the main trends driving calls for a health overhaul — rising costs and shrinking numbers of people with health coverage — essentially are the same as they were when the health-care debate began. "Nothing much has changed in that regard," he said.

Other advanced countries — including those with government-run health care — also have problems with costs. But the United States spends much more per person than any other nation, without better results in life expectancy and many other measures of health.

Information from The Associated Press is included in this report.