california Health Care Almanac

california Health Care Almanac : Slow But Steady august 2012

Introduction In 2014, implementation of the Affordable Care Act (ACA) will cause a spike in US health spending; analysts project an increase of 7.4% over 2013. This one-time increase will break a near decade-long period of slower growth for national health spending. In 2009, health spending increased only 3.8%, an all-time low. The 2010 increase was only slightly higher at 3.9%. This slow growth in 2010 health spending matched the growth in the economy as it recovered from recession, keeping health care s share of GDP unchanged at 17.9%., part of CHCF s California Health Care Almanac, details how much is spent on health care in the US; which services are purchased; and what proportions are financed by households, government, and business. Key findings include: Nearly $2.6 trillion was spent on health care in the US in 2010, or $8,402 per person. Overview contents Spending Levels... 3 Spending Categories... 9 Contributors...11 Payment Sources...15 Growth Trends...21 Spending Trends...30 Data Resources...31 Appendices...32 In 2010, the federal government became the largest financer of health care (29% of spending), surpassing households (28%) for the first time. Spending on Medicare and Medicaid together consumed 23% of the federal budget, exceeding defense spending by three percentage points. The federal government spent half of its revenues on health care; health care costs only consumed 6% of personal income. Public health insurance paid for 39% of the nation s health care; private health insurance paid for 33%. Out-of-pocket spending by consumers accounted for 12% of all spending, a figure which has been declining for many years. 2012 California HealthCare Foundation 2

Health Spending United States, 1960 to 2020, selected years Spending Levels National health spending in billions reached nearly $2.6 trillion $4,487 in 2010 and is projected to Recent Detail reach $4.5 trillion in 2020. 2006 $2,162 2007 $2,297 2008 2009 RECESSION PERIOD $2,404 $2,496 2010 $2,594 $2,594 $1,377 $75 $27 $256 $724 1960 1970 1980 1990 2000 2010 2020P Notes: Health spending refers to National Health Expenditures. Projections (P) include the impact of the Affordable Care Act. 2012 California HealthCare Foundation 3

Health Spending as a Share of GDP United States, 1960 to 2020, selected years Spending Levels Bucking the upward trend of the last 50 years, health Recent Detail 2006 16.2% care spending as a share of the economy remained 2007 2008 2009 2010 RECESSION PERIOD 16.4% 16.8% 17.9% 17.9% 17.9% 19.2% unchanged from 2009 to 2010 at 17.9%. The 2010 growth in health spending closely matched the growth 12.5% 13.8% in the economy, keeping health care s share of the economy flat. 9.2% 7.2% 5.2% 1960 1970 1980 1990 2000 2010 2020P Notes: Health spending refers to National Health Expenditures. Projections (P) include the impact of the Affordable Care Act. 2010 figure reflects a 4.2% increase in GDP and a 3.9% increase in national health spending. CMS projects national health spending will also have accounted for 17.9% of GDP in 2011 and 2012. 2012 California HealthCare Foundation 4

Health Spending Per Capita United States, 2000 to 2012, selected years Spending Levels Health spending per capita increased 72% between $7,251 $7,911 $8,402 $8,953 2000 and 2010, or an average of 5.6% annually. In 2012, US health spending is projected to reach $8,953 $6,488 per person. $5,687 $4,878 2000 2002 2004 2006 2008 2010 2012P Notes: Health spending refers to National Health Expenditures. Projections (P) include the impact of the Affordable Care Act. 2012 California HealthCare Foundation 5

Health Spending Per Enrollee United States, 2010 and 2014 Spending Levels Medicare spending per Medicare $11,259 enrollee was 2.3 times higher than employer- $12,018 sponsored insurance spending per enrollee, Medicaid $7,489 $7,622 2010 2014 (projected) mainly reflecting the greater health care needs of the elderly and disabled. Employer-Sponsored Insurance $4,855 $5,558 Children s Health Insurance Program (CHIP) $2,119 $2,441 Average Annual Growth, 2010 14P Medicare 1.6% Medicaid 0.4% Employer-Sponsored 3.4% CHIP 3.6% CHIP s per enrollee spending is consistently less than half that of other insurers. 0 3000 6000 9000 12000 15000 Notes: Health spending refers to National Health Expenditures. Projections (P) include the impact of the Affordable Care Act. Medicare physician payment rate reductions will take effect in 2013; new Medicaid enrollees in 2014 are expected to be younger and healthier than current enrollees, holding down per enrollee spending. 2012 California HealthCare Foundation 6

Major Programs as a Share of the Federal Budget United States, 1970 to 2010 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% Defense Social Security Medicare Medicaid 0% 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 20% 20% 15% 8% Spending Levels Medicare and Medicaid have consumed a gradually increasing share of federal spending. During the 2008 2009 recession, Medicare s share dipped as vigorous stimulus programs expanded overall federal spending. In 2010, with the economy starting to pull out of recession and government stimulus measures waning, Medicare and Medicaid again increased as a share of federal spending. Notes: Spending shares computed as percentage of federal outlays. All outlays reflect federal spending only (i.e., Medicaid outlays shown reflect federal portion of Medicaid). Sources: Centers for Medicare and Medicaid Services (CMS), Office of the Actuary, National Health Expenditure Data, 2012 release. Congressional Budget Office, The Budget and Economic Outlook: Fiscal Years 2012 to 2020, January 31, 2012, Appendix F, Historical Budget Data, www.cbo.gov. 2012 California HealthCare Foundation 7

8800 7700 Health Spending Per Capita and as a Share of GDP Selected Developed Countries, 2010 Other Private Out-of-Pocket Public $8,233 Spending Levels US health spending far exceeds that of other developed countries, both in per capita spending and as a 6600 percentage of GDP. In most 5500 $5,270 other developed countries, the public sector is the 4400 3300 $2,964 $3,433 $3,758 $3,974 $4,338 $4,445 primary source of funding for health care. 2200 $2,035 1100 0 Korea Italy UK Sweden France Germany Canada Switzerland US PERCENTAGE OF GDP 7.1% 9.3% 9.6% 9.6% 11.6% 11.6% 11.4% 11.4% 17.6% Notes: US spending per capita as reported by OECD differs from CMS figures reported elsewhere in this report. Health spending refers to National Health Expenditures. Source: Organization for Economic Cooperation and Development, OECD Health Data 2012, June 2012, www.oecd.org. PAYER Definitions Out-of-pocket is consumer spending on copays, deductibles, and goods and care not covered by insurance; it does not include premiums. Other private is computed as total spending less public spending and out-of-pocket spending. 2012 California HealthCare Foundation 8

Health Spending Distribution, by Category United States, 2010 Total Spending: $2.6 trillion Hospital Care 31% Physician and Clinical Services 20% 3% 6% Other 16% Personal Health Care 84% Rx Drugs 10% Government Administration (1%) 6% 6% Public Health Activities 3% 5% 3% 3% 4% Net Cost of Health Insurance Investment Other Professional Services Other Medical Products Home Health Care Dental Services Other Health Care Nursing Care Facilities Notes: Health spending refers to National Health Expenditures. See Appendix A for details on category breakdown; additional information on category definitions at: www.cms.gov and methodology at: www.cms.gov. Categories may not sum to 100% due to rounding. Spending Categories Hospital and physician services combined accounted for just over half of health care spending. Prescription drugs, the third largest spending category, accounted for another 10%. Spending Category Definitions Government administration includes the administrative costs of health care programs such as Medicare and Medicaid. Net cost of health insurance reflects the difference between benefits and premiums for private insurance. Other health care refers to the category other health, residential, and personal care. Other medical products refers to durable medical equipment and non-durable medical products. 2012 California HealthCare Foundation 9

Health Spending Summary, by Category United States, 1990 to 2010, selected years Spending Level (in billions) Distribution Growth Rate 1990 2009 2010 1990 2009 2010 2009 2010 1990 2010 National Health Expenditures $724 $2,496 $2,594 100.0% 100.0% 100.0% 3.9% 6.6% Hospital Care 250 776 814 34.6% 31.1% 31.4% 4.9% 6.1% Physician and Clinical Services 159 503 515 21.9% 20.1% 19.9% 2.5% 6.1% Dental Services 32 102 105 4.4% 4.1% 4.0% 2.3% 6.2% Other Professional Services 17 66 68 2.4% 2.6% 2.6% 3.6% 7.1% Spending Categories In the last 20 years, the share of health care dollars spent on hospital and physician care has declined, while the share spent on prescription drugs has increased. Prescription Drugs 40 256 259 5.6% 10.3% 10.0% 1.2% 9.8% Nursing Care Facilities 45 139 143 6.2% 5.6% 5.5% 3.2% 6.0% Home Health Care 13 66 70 1.7% 2.6% 2.7% 6.2% 9.0% Other Health Care 24 122 129 3.4% 4.9% 5.0% 5.3% 8.7% Other Medical Products 36 79 82 5.0% 3.2% 3.2% 4.7% 4.2% Administration 39 164 176 5.4% 6.6% 6.8% 7.2% 7.9% Public Health Activities 20 76 82 2.8% 3.1% 3.2% 8.2% 7.3% Investment 49 146 149 6.7% 5.9% 5.7% 1.9% 5.8% Notes: Health spending refers to National Health Expenditures. See Appendix A for details on category breakdown; additional information on category definitions at: www.cms.gov and methodology at: www.cms.gov. May not sum to totals due to rounding. Growth rate for 1990 2010 is average annual; 2009 2010 is the increase of 2010 over 2009 levels.. Spending Category Definitions Administration includes the administrative costs of health care programs such as Medicare and Medicaid as well as the net cost of health insurance. Other health care refers to the category other health, residential, and personal care. Other medical products refers to durable medical equipment and non-durable medical products. 2012 California HealthCare Foundation 10

Health Spending Distribution, by Contributor United States, 2010 State and Local Government 16% Federal Government 29% UTOTAL SPENDING $2.6 trillion Other Private 7% Household 28% Private Business 21% Notes: Health spending refers to National Health Expenditures. Estimates of spending by contributor are organized according to the underlying entity (business, households, and government) financing the health care bill payer. CMS refers to contributors as sponsors. Segments may not sum to 100% due to rounding. Contributors Contributors finance the nation s health care bill by paying insurance premiums, out-of-pocket expenses, and payroll taxes, or by directing general tax revenues to health care. The federal government and households contributed nearly equally. CONTRIBUTOR Definitions Household contributions include out-of-pocket costs, health insurance premiums, and payroll taxes. Private business contributions include health insurance premiums for workers and payroll taxes. Other private contributions include philanthropy, privately funded structures and equipment, and investment income. Federal government contributions include general tax revenues, plus payroll tax and private health insurance for its workers. State and local government contributions include general tax revenues, plus payroll tax and private health insurance for its workers. 2012 California HealthCare Foundation 11

Health Spending Distribution, Contributor Detail United States, 2010 Federal Government $742.7 Private Insurance Premiums (employer contribution) 4% Medicare Payroll Tax (for federal workers) 1% Households Private Business Medicare Part B Premiums 7% Medicare Payroll Tax 15% Workers Compensation Insurance and Other 8% State and Local Government Medicare Payroll Tax 15% Medicaid 37% Medicare 34% Other Health Programs (excluding Medicare) 24% Out-of-Pocket Health Spending 41% Private Insurance Premiums (employee or enrollee share) 36% $421.1 $534.5 UTOTAL SPENDING $2.6 trillion $725.5 Private Insurance Premiums (employer contribution) 78% in billions Contributors The majority (77%) of private business spending on health care consisted of employer contributions to insurance premiums for workers. Household spending consisted largely of contributions to private insurance premiums and out-of-pocket spending on copays, coinsurance, and items not covered by insurance. Medicaid 32% Private Insurance Premiums (employer contribution) 32% Medicare Payroll Tax (for state and local workers) 3% Other Health Programs 33% Notes: Health spending refers to National Health Expenditures. Not shown: Other Private Revenues ($169.9 billion), which includes philanthropy, privately funded structures and equipment, and investment income. Medicaid buy-in premiums for Medicare are reflected under Medicaid. Figures may not add due to rounding. CMS refers to contributors as sponsors. 2012 California HealthCare Foundation 12

Health Spending Distribution, by Contributor United States, 2000 to 2010, selected years 35% 30% 25% 20% 15% 10% 5% 0% Household Private Business Federal Government State and Local Government Other Private 2000 2002 2004 RECESSION PERIOD 2006 Notes: Health spending refers to National Health Expenditures. CMS refers to contributors as sponsors. 2008 2010 29% 28% 21% 16% 7% Contributors In 2010, federal contributions to health spending barely surpassed household contributions for the first time. The rapid shift in the federal government s financing of health care was partly a function of economic recovery measures, which included increased federal matching contributions to Medicaid in 2009 and 2010. Private business contributions continued to decline in 2010 mainly the result of job losses during the recession. 2012 California HealthCare Foundation 13

60 50 40 30 20 Health Care s Consumption of Contributor Resources United States, 2010 50.9% 27.8% Contributors Financing health care consumed significant resources from contributors: 6.2% of personal income, and 8.5% of businesses total employee compensation. The federal government contributed 50.9% of its revenues toward health care. 10 6.2% 8.5% 0 Household Private Business State and Local Government* Federal Government* % of Adjusted Personal Income % of Total Compensation % of Revenues % of Revenues *Government revenues are receipts minus contributions for government social insurance; due to borrowing, federal government revenues are less than outlays. 2012 California HealthCare Foundation 14

Health Spending Distribution, by Payer United States, 2010 Private Health Insurance 33% Medicare 20% 3% UTOTAL SPENDING $2.6 trillion 6% Other Payers 7% Out-of-Pocket 12% Public Health Insurance 39% Medicaid* 15% Public Health Activities 4% *Medicaid spending is two-thirds federal and one-third state spending (10.4% and 5.1% of total spending respectively). Notes: Health spending refers to National Health Expenditures. See Appendix B for detail on payer projections through 2021. Investment Other Public Health Insurance Payment Sources Payers compensate providers, as well as fund public health activities and investments in structures and equipment. Public insurance paid for the largest share of health care costs (39%), and private health insurance paid 33%. PAYER Definitions Out-of-pocket is consumer spending on copays, deductibles, and goods and care not covered by insurance; it does not include premiums. Other public health insurance includes Departments of Defense and Veterans Affairs health care, as well as the Children s Health Insurance Program (CHIP). Other payers includes worksite health care, Indian Health Service, workers compensation, maternal and child health, and vocational rehabilitation. 2012 California HealthCare Foundation 15

Historic Payment Sources United States, 1960 to 2010 Payment Sources Out-of-pocket spending 100% Public Health Activities Investment 3% 6% continued to decline as a share of all health spending, Other Payers 7% reaching an all time low of 80% 60% Out-of-Pocket Other Public Health Insurance Medicaid 12% 4% 15% 12% in 2010. Private health insurance, which paid a rising share of all spending from 1997 through 2004, declined slightly. Medicare 40% Medicare 20% and Medicaid payments, as a share of all health spending, Private Health Insurance 33% continued to rise. 20% PAYER Definitions 0% 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 Out-of-pocket is consumer spending on copays, deductibles, and goods and care not covered by insurance; it does not include premiums. Other public health insurance includes Departments of Defense and Veterans Affairs health care, as well as the Children s Health Insurance Program (CHIP). Notes: Reflects National Health Expenditures. Figures may not add to 100% due to rounding. Other payers includes worksite health care, Indian Health Service, workers compensation, maternal and child health, and vocational rehabilitation. 2012 California HealthCare Foundation 16

Health Spending Distribution, by Payer United States, 2010, 2014, 2020 Private Health Insurance Medicare Medicaid Out-of-Pocket 11.6% 10.2% 9.5% Other Public Health Insurance 3.7% 3.8% 3.5% 20.2% 20.3% 20.8% 15.5% 18.5% 19.8% 32.7% 31.9% 31.5% 2010 2014 (projected) 2020 (projected) 0 5 10 15 20 25 30 35 Notes: Health spending refers to National Health Expenditures. Projections include the impact of the Affordable Care Act (ACA). The following payers are not shown: Other Payers, Public Health Activities, and Investment, which combined total 16.3%, 15.4%, and 14.9% of spending in 2010, 2014, and 2020, respectively. See Appendix B for detail on payer projections through 2021. Categories may not sum to 100% due to rounding. Payment Sources Medicaid s share of health spending is projected to increase over the next decade. By 2020, Medicaid will account for nearly 20% of all health spending, due in part to Medicaid expansion expected under health reform. Private health insurance and out-of-pocket spending are projected to comprise a smaller share over time. PAYER Definitions Out-of-pocket is consumer spending on copays, deductibles, and goods and care not covered by insurance; it does not include premiums. Other public health insurance includes Departments of Defense and Veterans Affairs health care, as well as the Children s Health Insurance Program (CHIP). 2012 California HealthCare Foundation 17

Payer Mix, by Service Category United States, 2010 PAYER SEGMENTS IN BILLIONS Hospital Care $814.0 $285.8 Personal Health Care: $2.2 trillion Physician and Clinical Services $515.5 $239.4 Prescription Drugs $259.1 $117.0 Dental $104.8 $51.0 All Other Care and Products $279.4 $35.6 $87.1 Nursing Care $143.1 $12.7 $40.4 Home Health $70.2 $4.5 $5.0 $2.2 Payment Sources Private insurance paid for almost half of physician services and prescription drugs, while home health care was primarily paid $31.5 for by a combination of Medicare and Medicaid. A $25.9 $73.7 $226.5 $49.3 $48.8 $43.3 $46.9 $8.9 $31.9 substantial portion of dental spending was paid for out of pocket by consumers. $47.6 $152.5 $114.6 $3.4 $59.5 $29.7 $77.2 $45.1 $26.2 For an interactive look at how the payer mix by service category has changed over time, visit www.chcf.org/hcc101. $49.6 $43.0 $21.7 Private Health Insurance Out-of-Pocket Other Payers Medicare Medicaid Other Public Health Insurance Notes: All Other Care and Products consists of the following categories of spending: durable medical equipment; non-durable medical products; other professional services; and other health, residential, and personal care. For additional detail on spending categories, see Appendix A. $20.2 $10.3 $0.5 $0.2 $7.4 $2.3 $2.9 $4.0 $0.8 PAYER Definitions Out-of-pocket is consumer spending on copays, deductibles, and goods and care not covered by insurance; it does not include premiums. Other public health insurance includes Departments of Defense and Veterans Affairs health care, as well as the Children s Health Insurance Program (CHIP). Other payers includes worksite health care, Indian Health Service, workers compensation, maternal and child health, and vocational rehabilitation. 2012 California HealthCare Foundation 18

Spending Distribution, Private Insurance vs. Out-of-Pocket United States, 2010 Hospital Care Physician and Clinical Services Prescription Drugs Administration Dental Services Nursing Care Facilities Other Health Care Home Health Care Other Medical Products 0% 1% 1% 2% 1% 2% 1% 6% 9% 12% 16% 14% 16% 14% 13% 21% 28% Private Insurance Out-of-Pocket Spending Levels (in billions) Private Insurance $848.7 Out-of-Pocket $299.7 Notes: Not shown: Other Professional Services (2.9% of private health insurance payments; 5.9% of out-of-pocket payments). See Appendix A for details on category breakdown; additional information on category definitions at: www.cms.gov and methodology at: www.cms.gov. 34% Payment Sources The largest expense for private insurance was hospital care, which accounted for more than one-third of its total spending. In contrast, the largest out-of-pocket expense was other medical products, such as eyeglasses and over-the-counter medications. Spending Category Definitions Other health care refers to the category other health, residential, and personal care. Other medical products refers to durable medical equipment and non-durable medical products. Administration includes the administrative costs of health care programs such as Medicare and Medicaid as well as the net cost of health insurance. 2012 California HealthCare Foundation 19

Spending Distribution, Medicare vs. Medicaid United States, 2010 Hospital Care Physician and Clinical Services Prescription Drugs Nursing Care Facilities Home Health Care Administration Other Medical Products Other Health Care Dental Services 5% 6% 2% 1% 1% 0% 2% 6% 7% 6% 7% 11% 11% 11% 17% 22% 38% Medicare Medicaid 43% Spending Levels (in billions) Medicare $524.6 Medicaid $401.4 includes care, such as respite and rehabilitation services, in nontraditional settings, such as senior centers, community centers, and homes, for those who would otherwise require long term institutional care. Notes: Not shown: Other Professional Services (2.7% of Medicare spending and 1.2% of Medicaid spending). See Appendix A for details on category breakdown; additional information on category definitions at: www.cms.gov and methodology at: www.cms.gov. Payment Sources Both Medicare and Medicaid spent the greatest percentage of their overall spending on hospital care. Medicaid spent a larger share on nursing home care and a smaller share on prescription drugs and physician services. Spending Category Definitions Other health care refers to the category other health, residential, and personal care. Other medical products refers to durable medical equipment and non-durable medical products. Administration includes the administrative costs of health care programs such as Medicare and Medicaid as well as the net cost of health insurance. 2012 California HealthCare Foundation 20

Average Annual Growth Rates in Health Spending United States, 1970 to 2010, selected years growth over prior period shown 10.6% 13.1% 11.0% Recent Detail 2006 6.6% 2007 2008 2009 2010 RECESSION PERIOD 3.9% 3.8% 6.2% 4.7% Growth Trends Over the last five years, health care spending has slowed substantially; 2009 and 2010 had growth rates of 3.8% and 3.9% respectively. 6.6% 6.5% Average Annual Growth 2000 to 2005: 8.1% 2005 to 2010: 5.0% 1970 1980 1990 2000 2010 Notes: Health spending refers to National Health Expenditures. The 1970 figure represents the average annual increase from 1960 to 1970. 2012 California HealthCare Foundation 21

Annual Growth Rates, Health Spending vs. Inflation United States, 1970 to 2010 18% 16% 14% National Health Spending Consumer Price Index Growth Trends Despite historically low levels of growth, health spending in 2010 continued to outpace changes in consumer prices. 12% 10% 8% 6% 4% 2% 3.9% 1.6% 0% 2% 1970 1980 1990 2000 2010 Notes: Health spending refers to National Health Expenditures. The recent economic recession spanned the period from December 2007 to June 2009. Sources: Centers for Medicare and Medicaid Services (CMS), Office of the Actuary, National Health Expenditure Data, 2012 release. Bureau of Labor Statistics (CPI-U, US city average, annual figures). 2012 California HealthCare Foundation 22

Annual Growth Rates, Health Spending vs. the Economy United States, 2000 to 2020 12% 10% 8% 6% 4% 2% 0% National Health Spending LOWEST GROWTH ON RECORD (3.8%) Gross Domestic Product (GDP) ACA IMPLEMENTATION (7.4% OVERALL INCREASE) Growth Trends Modest growth in health spending is projected until 2014, when major provisions of the ACA will cause a one-time spike in growth rates. In 2014, spending is projected to increase 7.4%. CMS analysts project that the long term growth in the economy will be slower than health spending, raising continued concerns about health care affordability. 2% 4% 2000 2002 2004 DECLINE IN GDP ( 2.5%) 2006 2008 2010 2012 2014P 2016P 2018P 2020P Notes: Health spending refers to National Health Expenditures. Projections (P/dotted lines) include the impact of the Affordable Care Act (ACA). See Appendix B for detail on payer projections through 2021. 2012 California HealthCare Foundation 23

Annual Growth Rates, Selected Spending Categories United States, 1990 to 2010 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 2% 1990 Hospital Care Physician and Clinical Services Rx Drugs CPI Notes: Spending refers to National Health Expenditures. Consumer Price Index (CPI) reflects all urban consumers, US city average, annual figures. Sources: Centers for Medicare and Medicaid Services (CMS), Office of the Actuary, National Health Expenditure Data, 2012 release. Bureau of Labor Statistics. 2000 2010 4.9% 2.5% 1.6% 1.2% Growth Trends Growth in major health care spending categories slowed in 2010, falling below both 2008 and 2009 levels. Spending on prescription drugs in 2010 grew only 1.2%, its lowest recorded growth rate. Several factors, such as the increased use of generic medications, the slowed growth in the number of prescriptions consumed, and the loss of patent protection for some blockbuster drugs, contributed to the small increase in prescription drug spending. 2012 California HealthCare Foundation 24

Contribution to Increase in Health Spending, by Category United States, 2010 Hospital Care Physician and Clinical Services Net Cost of Health Insurance Other Health Care Public Health Activities Nursing Care Facilities Home Health Care Other Medical Products Prescription Drugs Investment Other Professional Services 2% 3% 3% 4% 4% 5% Dental Services 2% 6% 7% Government Administration 1% 12% 13% TOTAL INCREASE IN HEALTH SPENDING: $98 billion Notes: Health spending refers to National Health Expenditures. See Appendix A for details on category breakdown; additional information on category definitions at: www.cms.gov and methodology at: www.cms.gov. Categories may not sum to 100% due to rounding. 39% Growth Trends Hospital spending increased $38 billion between 2009 and 2010, accounting for the largest component (39%) of 2010 s $98 billion increase in health spending. The net cost of private health insurance accounted for 12%, or $11 billion, of the overall increase in spending. Spending Category Definitions Other health care refers to the category other health, residential, and personal care. Other medical products refers to durable medical equipment and non-durable medical products. Government administration includes the administrative costs of health care programs such as Medicare and Medicaid. Net cost of health insurance reflects the difference between benefits and premiums for private insurance. 2012 California HealthCare Foundation 25

Annual Change in Health Spending Levels, by Category United States, 2010 0.8% Net Cost of Health Insurance Public Health Activities Research Home Health Care Other Health Care Hospital Care Other Medical Products Other Professional Services Nursing Care Facilities Physician and Clinical Services Dental Services Government Administration Prescription Drugs 1.2% 1.7% Structures and Equipment 2.5% 2.3% 3.2% 3.6% 4.9% 4.7% 5.3% 6.2% TOTAL HEALTH SPENDING INCREASE: 3.9% 7.9% 8.4% 8.2% Personal Health Care Other Spending Categories Notes: Health spending refers to National Health Expenditures. See Appendix A for details on category breakdown; additional information on category definitions at: www.cms.gov and methodology at: www.cms.gov. Growth Trends The three fastest growing spending categories in 2010 were not related to the direct provision of personal health care. The net cost of health insurance, which includes administration costs and profit, increased by 8.4%, making it the fastest growing category. Spending Category Definitions Other health care refers to the category other health, residential, and personal care. Other medical products refers to durable medical equipment and non-durable medical products. Government administration includes the administrative costs of health care programs such as Medicare and Medicaid. Net cost of health insurance reflects the difference between benefits and premiums for private insurance. 2012 California HealthCare Foundation 26

Annual Change in Health Spending Levels, by Payer United States, 2010 Medicaid Other Public Health Insurance Medicare Other Payers 3.2% 5.0% 6.5% 7.2% Growth Trends Out-of-pocket health spending by consumers grew only 1.8% between 2009 and 2010, the smallest increase of the major payers. Medicare and Medicaid spending growth far outpaced that of private health insurance. Private Health Insurance 2.4% Out-of-Pocket 1.8% TOTAL HEALTH SPENDING INCREASE: 3.9% 0 1 2 3 4 5 6 7 Notes: Health spending refers to National Health Expenditures. See Appendix B for detail on payer projections through 2021. Not shown: Public Health Activities (8.2%); Investment (1.9%). PAYER Definitions Out-of-pocket is consumer spending on copays, deductibles, and goods and care not covered by insurance; it does not include premiums. Other public health insurance includes Departments of Defense and Veterans Affairs health care, as well as the Children s Health Insurance Program (CHIP). Other payers includes worksite health care, Indian Health Service, workers compensation, maternal and child health, and vocational rehabilitation. 2012 California HealthCare Foundation 27

Annual Growth Rates, by Payer United States, 2000 to 2010 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Private Health Insurance Out-of-Pocket Medicare Medicaid MEDICARE PRESCRIPTION DRUG BENEFIT IMPLEMENTED 10-Year Average Annual Growth Private Health Insurance 6.3% Out-of-Pocket 4.0% Medicare 8.9% Medicaid 7.2% 7.2% 5.0% 2.4% 1.8% Growth Trends Over the past decade, health care spending growth has slowed among all payers. The slowdown in private health insurance spending reflects declines in enrollment and increased cost sharing. Out-ofpocket spending growth rebounded slightly in 2010 from its dramatic recessionperiod slowdown. Medicaid growth slowed in 2010, following its acceleration during the recession. 2% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Notes: See Appendix B for detail on payer projections through 2021. Not shown: Other Public Health Insurance, Other Payers. 2012 California HealthCare Foundation 28

Annual Growth Rates, by Payer United States, 2010 to 2020 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% Private Health Insurance Out-of-Pocket Medicare Medicaid ACA IMPLEMENTATION Growth Trends With the implementation of health reform in 2014, many people are expected to gain insurance, especially through Medicaid. Accordingly, Medicaid spending is projected to increase the most of all payers 18%, up from 7% the prior year. Out-of-pocket spending is expected to fall as many uninsured people gain coverage. 0% 2% 2010 2011P 2012P 2013P 2014P 2015P 2016P 2017P 2018P 2019P 2020P Notes: Projections (P/dotted lines) include the impact of the Affordable Care Act. The projected 2013 slowdown in Medicare spending is the result of two policy actions: a 30.9% cut to physician payment rates mandated by Medicare s sustainable growth rate formula and a provision of the Budget Control Act of 2011, which requires an estimated 2% cut to Medicare payments between 2013 and 2022. Not shown: Other Public Health Insurance, Other Payers. See Appendix B for detail on payer projections. 2012 California HealthCare Foundation 29

Prescription Drugs, by Source of Payment United States, 1980 to 2010 80% 70% 60% 50% 40% 30% 20% 10% Private Insurance Out-of-Pocket Medicaid Medicare 45% 23% 19% 8% Spending Trends In the 1980s and 1990s, private insurers accounted for an increasing share of prescription spending. Since the implementation of Medicare s Part D drug coverage in 2006, a larger share of drug spending is being paid for by the public sector. The share of prescription spending paid out of pocket continues to decline. 0% 1980 1990 2000 2010 Note: Not shown: Other Public Health Insurance, Other Payers. 2012 California HealthCare Foundation 30

Data Resources Economic Data Historical Budget Data, as presented in Congressional Budget Office, The Budget and Economic Outlook, Fiscal Years 2012 to 2022 (January 31, 2012), Appendix F. www.cbo.gov Consumer Price Index, Bureau of Labor Statistics: www.bls.gov/cpi Organization for Economic Development. OECD Health Data: 2012. Frequently Requested Data, June 2012. www.oecd.org Journal Publications Authored by CMS Staff Anne B. Martin, David Lassman, Benjamin Washington, Aaron Catlin, and the National Health Expenditure Accounts Team. Growth In US Health Spending Remained Slow In 2010; Health Share Of Gross Domestic Product Was Unchanged From 2009, Health Affairs, January 2012, 31:1, 208 219. www.healthaffairs.org Sean P. Keehan, Gigi A. Cuckler, Andrea M. Sisko, Andrew J. Madison, Sheila D. Smith, Joseph M. Lizonitz, John A. Poisal, and Christian J. Wolfe. National Health Expenditure Projections: Modest Annual Growth Until Coverage Expands and Economic Growth Accelerates, Health Affairs, July, 2012, 31:7. www.healthaffairs.org National Health Expenditures Historical Information/Overview Data: www.cms.gov Definitions, Sources, Methods (PDF): www.cms.gov Health Expenditures by Sponsors: Business, Household and Government: www.cms.gov Overview of National Health Expenditure Resources: www.cms.gov Quick Reference Definitions (PDF): www.cms.gov Summary of Benchmark Changes (PDF): www.cms.gov Tables (PDF): www.cms.gov Projections Data: www.cms.gov Methodology (PDF): www.cms.gov Forecast Summary and Selected Tables (updated PDF): www.cms.gov about this series The California Health Care Almanac is an online clearinghouse for data and analysis examining the state s health care system. It focuses on issues of quality, affordability, insurance coverage and the uninsured, and the financial health of the system with the goal of supporting thoughtful planning and effective decisionmaking. Learn more at www.chcf.org/almanac. Author Katherine B. Wilson, consultant for more information California HealthCare Foundation 1438 Webster Street, Suite 400 Oakland, CA 94612 510.238.1040 www.chcf.org 2012 California HealthCare Foundation 31

Appendix A: Category Breakdown Appendices Spending Level (in millions) Distribution Growth rate 1990 2009 2010 1990 2009 2010 1990 2010 2009 2010 National Health Expenditures $724,282 $2,495,842 $2,593,644 100.0% 100.0% 100.0% 6.6% 3.9% Health Consumption Expenditures $675,596 $2,349,544 $2,444,600 93.3% 94.1% 94.3% 6.6% 4.0% Personal Health Care $616,820 $2,109,003 $2,186,013 85.2% 84.5% 84.3% 6.5% 3.7% Hospital Care 250,439 776,090 814,045 34.6% 31.1% 31.4% 6.1% 4.9% Physician and Clinical Services 158,945 502,749 515,483 21.9% 20.1% 19.9% 6.1% 2.5% Dental and Other Professional Services 49,151 168,463 173,143 6.8% 6.7% 6.7% 6.5% 2.8% Dental Services 31,742 102,474 104,785 4.4% 4.1% 4.0% 6.2% 2.3% Other Professional Services 17,408 65,989 68,357 2.4% 2.6% 2.6% 7.1% 3.6% Nursing Care Facilities 44,890 138,670 143,078 6.2% 5.6% 5.5% 6.0% 3.2% Home Health Care 12,567 66,104 70,172 1.7% 2.6% 2.7% 9.0% 6.2% Other Health Care 24,337 122,030 128,533 3.4% 4.9% 5.0% 8.7% 5.3% Retail Outlet Sales 76,491 334,897 341,559 10.6% 13.4% 13.2% 7.8% 2.0% Prescription Drugs 40,290 256,106 259,061 5.6% 10.3% 10.0% 9.8% 1.2% Other Non-Durable Medical Products 22,446 43,617 44,762 3.1% 1.7% 1.7% 3.5% 2.6% Durable Medical Equipment 13,754 35,174 37,736 1.9% 1.4% 1.5% 5.2% 7.3% Administration $38,780 $164,309 $176,097 5.4% 6.6% 6.8% 7.9% 7.2% Net Cost of Health Insurance 31,604 134,743 146,029 4.4% 5.4% 5.6% 8.0% 8.4% Federal Government Administration 4,930 20,427 20,984 0.7% 0.8% 0.8% 7.5% 2.7% State and Local Government Administration 2,247 9,140 9,085 0.3% 0.4% 0.4% 7.2% 0.6% Public Health Activities $19,996 $76,232 $82,489 2.8% 3.1% 3.2% 7.3% 8.2% Investment $48,687 $146,299 $149,045 6.7% 5.9% 5.7% 5.8% 1.9% Research 12,679 45,677 49,267 1.8% 1.8% 1.9% 7.0% 7.9% Structures and Equipment 36,008 100,621 99,778 5.0% 4.0% 3.8% 5.2% 0.8% CategorY Definitions Other professional services consists of care provided in establishments operated by health care providers other than physicians or dentists, such as chiropractors, podiatrists, and speech therapists. Nursing care facilities and continuing care retirement facilities category includes freestanding facilities only. Other health care refers to the category, Other Health, Residential, and Personal Care, which includes care provided in non-traditional settings, such as ambulances, military field hospitals, and schools. Net cost of health insurance reflects the difference between benefits and premiums for private insurance, and includes claims proccessing costs, marketing costs, premium taxes, and profits or losses. Government administration (federal/state and local) includes the administrative costs of health care programs such as Medicare and Medicaid. Public health activities reflects government spending to prevent or control public health problems, for example through the Centers for Disease Control and Prevention and the Food and Drug Administration. Research refers to non-commercial research conducted by nonprofit or government entities. Research by commercial enterprises is reflected in their respective spending categories. For example, research by pharmaceutical manufacturers is included in the amount spent on prescription drugs. Structures and equipment reflects construction costs for new or replacement medical establishments, such as a new hospital wing or medical office building, and investment in capital equipment for medical establishments, such as new imaging equipment or hospital beds. Notes: May not sum to totals due to rounding. Growth rates for 1990 2010 are average annual. Note: Additional information on category definitions at: www.cms.gov and methodology at: www.cms.gov. 2012 California HealthCare Foundation 32

Appendix B: Projections, by Payer, 2010 to 2021 Appendices total health spending Amount (in billions) Growth Share Amount (in billions) Private Health Insurance Growth Share Amount (in billions) Out-of-Pocket Growth Share Amount (in billions) Other Payers, Public Health Activities, and Investment Medicare Medicaid Growth Share Amount (in billions) Growth Share Amount (in billions) Growth Share Amount (in billions) Other Public Health Insurance 2010 $2,593.6 3.9% 100.0% $848.7 2.4% 32.7% $299.7 1.8% 11.6% $423.2 3.7% 16.3% $524.6 5.0% 20.2% $401.4 7.2% 15.5% $96.1 6.5% 3.7% 2011P $2,695.0 3.9% 100.0% $864.4 1.8% 32.1% $304.4 1.6% 11.3% $437.2 3.3% 16.2% $557.8 6.3% 20.7% $428.7 6.8% 15.9% $102.5 6.6% 3.8% 2012P $2,809.0 4.2% 100.0% $888.6 2.8% 31.6% $312.1 2.5% 11.1% $450.8 3.1% 16.0% $590.8 5.9% 21.0% $458.9 7.0% 16.3% $107.7 5.1% 3.8% 2013P $2,915.5 3.8% 100.0% $925.2 4.1% 31.7% $322.7 3.4% 11.1% $465.3 3.2% 16.0% $598.4 1.3% 20.5% $491.0 7.0% 16.8% $113.0 4.9% 3.9% 2014P $3,130.2 7.4% 100.0% $997.8 7.9% 31.9% $317.7-1.5% 10.2% $480.8 3.3% 15.4% $635.0 6.1% 20.3% $579.2 18.0% 18.5% $119.5 5.8% 3.8% 2015P $3,307.6 5.7% 100.0% $1,060.4 6.3% 32.1% $328.9 3.5% 9.9% $504.1 4.8% 15.2% $666.5 4.9% 20.1% $621.0 7.2% 18.8% $126.8 6.1% 3.8% 2016P $3,514.4 6.3% 100.0% $1,130.5 6.6% 32.2% $340.0 3.4% 9.7% $531.7 5.5% 15.1% $707.0 6.1% 20.1% $672.4 8.3% 19.1% $132.7 4.7% 3.8% 2017P $3,723.3 5.9% 100.0% $1,191.0 5.4% 32.0% $359.4 5.7% 9.7% $564.6 6.2% 15.2% $754.8 6.8% 20.3% $719.4 7.0% 19.3% $134.1 1.0% 3.6% 2018P $3,952.3 6.2% 100.0% $1,252.5 5.2% 31.7% $381.6 6.2% 9.7% $598.8 6.1% 15.2% $809.1 7.2% 20.5% $769.9 7.0% 19.5% $140.3 4.6% 3.6% 2019P $4,207.3 6.5% 100.0% $1,329.2 6.1% 31.6% $402.9 5.6% 9.6% $632.2 5.6% 15.0% $867.9 7.3% 20.6% $825.8 7.3% 19.6% $149.1 6.3% 3.5% 2020P $4,487.2 6.7% 100.0% $1,412.0 6.2% 31.5% $426.0 5.7% 9.5% $667.0 5.5% 14.9% $934.9 7.7% 20.8% $888.6 7.6% 19.8% $158.8 6.4% 3.5% 2021P $4,781.0 6.5% 100.0% $1,495.4 5.9% 31.3% $449.2 5.5% 9.4% $703.2 5.4% 14.7% $1,006.9 7.7% 21.1% $957.4 7.7% 20.0% $168.9 6.4% 3.5% Growth Share PAYER definitions Out-of-pocket is consumer spending on copays, deductibles, and goods and care not covered by insurance; it does not include premiums. Other payers includes worksite health care, Indian Health Service, workers compensation, maternal and child health, and vocational rehabilitation. Other public health insurance includes Departments of Defense and Veterans Affairs health care, as well as the Children s Health Insurance Program (CHIP). Notes: Health spending refers to National Health Expenditures. Projections (P) include the impact of the Affordable Care Act. Growth percentages are annual figures. May not sum to totals due to rounding. 2012 California HealthCare Foundation 33