US Health Spending Hits Record High

By Yuval Rosenberg

We have so much to tell you about this Wednesday evening. Congressional negotiators say they’ve reached a deal on the framework to fund the government through the end of fiscal year 2023. Lawmakers are set to vote on a one-week extension of current funding as they finalize the broader spending plan. (The House also followed the Senate in voting to remove from the Capitol the bust of Roger Taney, the chief justice who authored the infamous 1857 Supreme Court decision protecting slavery in the Dred Scott case.)

The Federal Reserve, meanwhile, continued its fight against inflation by raising interest rates again. And the government released a bunch of data detailing how health care spending rose last year.

Lawmakers Say They Have a Spending Deal, but There's More Work to Do

Congressional negotiators announced Tuesday night they had reached a bipartisan deal on the framework for a full-year spending plan.

"We’ve made the first big, big, big, big step," said Sen. Richard Shelby of Alabama, the top Republican on the Senate Appropriations Committee.

The details haven’t been finalized, and it will still take time to write the text of the massive omnibus funding bill covering some $1.7 trillion in spending, meaning that lawmakers still must pass a stopgap measure to prevent a partial shutdown after Friday, when the current funding expires.

The House is set to vote on the one-week stopgap funding bill tonight and the Senate could vote on it Thursday, barring what Senate Majority Leader Chuck Schumer called an "unwelcome brouhaha." Any single senator could disrupt the planned timing.

Once the short-term threat of a shutdown is averted, lawmakers will need to button up the broader spending bill and wrangle the votes to pass it — both of which could present challenges.

House Minority Leader Kevin McCarthy (R-CA) has been vocal about his opposition to a full-year spending deal, preferring to hold off on negotiations until his caucus takes control of the House in January. Rep. Kay Granger (R-TX), the top appropriator for House Republicans, reportedly has not been involved in negotiations and was not part of the deal announced by Shelby, House Appropriations Chair Rosa DeLauro (D-CT) and Senate Appropriations Chair Patrick Leahy (D-VT). If House Republicans uniformly oppose the spending bill, Democrats in the chamber will have only a couple of votes to spare in trying to pass it.

Democrats and Republicans had previously agreed to roughly $858 billion in defense spending for fiscal year 2023 but were about $26 billion apart on non-defense funding. Republicans resisted Democratic demands for parity in spending increases and had reportedly pushed to keep the topline spending total below the $1.65 trillion requested by President Joe Biden.

"I’m glad that our Democratic colleagues finally accepted reality and conceded to the Republican position that we need to prioritize our national security," Senate Minority Leader Mitch McConnell (R-KY) said on the floor Wednesday morning, according to Politico.

The full-year funding package is expected to include additional funding for Ukraine as well as a reform of the Electoral Count Act governing the certification of elections. It is not expected to include the expanded Child Tax Credit that Democrats had hoped to revive.

Fed Announces Smaller Rate Hike but Sees More Increases Ahead

The Federal Reserve on Wednesday raised its key interest rate by 50 basis points, to a range between 4.25% and 4.5%, the highest level in 15 years. The widely expected move, which comes after four consecutive increases of 75 basis points, confirms that the central bank has seen enough progress in its battle against inflation to begin slowing the pace of rate hikes.

At the same time, Fed Chair Jay Powell said "we still have some ways to go" in the effort to push inflation levels down to the bank’s target rate of 2%. "We’ve taken forceful actions to tighten the stance of monetary policy," Powell told reporters at a press conference following the announcement. "We’ve covered a lot of ground and the full effects of our rapid tightening so far are yet to be felt. Even so, we have more work to do."

New projections released by the Federal Open Market Committee show that the central bankers now think that interest rates will go higher than previously expected, with rates hitting an estimated 5.1% at some point in 2023. That means the FOMC expects to raise rates by at least another 75 basis points, with increases likely coming in the first few meetings next year. The last set of projections, released in September, showed that bankers previously thought that rates would top out at 4.6%.

The committee also projects higher inflation levels in the near term, raising its estimate for overall inflation next year to 3.1%, up from 2.8% in its last estimate. Powell warned that "inflation risks are to the upside."

One potential outcome of the Fed’s continued aggressive stance is that unemployment could rise higher than previously expected. Committee members raised their projection for the unemployment rate in 2023 to 4.6%, with no relief in 2024. "We've made less progress than expected on inflation," Powell told reporters. "So that's why unemployment goes up, because we're having to tighten policy more."

The bottom line: Though the pace of rate increases is slowing, Powell reminded everyone that the Fed will continue to tighten its grip on the economy until it is convinced that the inflation rate is returning to a level near 2% – a goal that could take a while to achieve. "We think that we'll have to maintain a restrictive stance of policy for some time," he said. "Historical experience caution strongly against prematurely loosening policy."

U.S. Health Spending Grew to $4.3 Trillion in 2021

As the Covid-19 pandemic wore on last year, U.S. health care spending grew 2.7% to $4.3 trillion, or nearly $13,000 per person, according to a new analysis by Medicare actuaries published online in the journal Health Affairs. The increase was far smaller than the 10.3% jump seen in 2020, when the virus first exploded across the country, and the annual report highlights how health spending changed as the disruptive effects of the pandemic — and the massive emergency response — began to fade.

"Three key factors affected the spending trend in 2021, with the decline in federal government health care spending far outweighing greater use of health care goods and services and increased insurance coverage," the report says.

Federal health care spending fell in 2021: After a 37% spike in federal health care spending fueled by the pandemic in 2020, government health care expenditures fell by 3.5% last year — to $1.46 trillion — as Covid-19 funding continued at lower levels. Federal spending on public health activity, for example, fell from about $136 billion in 2020 to $79 billion in 2021, a drop of more than 40%.

The use of medical goods and services grew: Health spending excluding emergency pandemic programs and federal public health efforts grew by 7.6% in 2021, compared with 2.3% the prior year, as Covid-19 vaccinations became widely available and medical care that had been put off due to the pandemic picked up again.

The health care sector shrank as a share of the economy: Health spending dropped from 19.7% of gross domestic product in 2020 to 18.3% in 2021, driven by broader growth in the economy, but health spending remained higher than the 17.6% share of GDP it represented in 2019, before the pandemic.

The number of uninsured fell again: As Medicaid enrollment swelled due to the pandemic and related federal restrictions preventing states from dropping people from their Medicaid rolls, the number of uninsured Americans fell for a second straight year, dropping from 31.2 million to 28.5 million. Medicaid enrollment grew by 8.5 million, or 11.2%, the most since 2015. Medicare and private insurance enrollment also grew, by 1.7% and 0.3%, respectively.

Medicare and Medicaid spending jumped: Spending by the health care program for seniors topped $900 billion last year, up 8.4% compared with 3.6% growth in 2020. Medicare accounted for more than a fifth of total national health care spending. Medicaid spending increased 9.2% to $734 billion, or 17% of the national total, though on a per-enrollee basis spending fell by 1.8%. Overall, the federal government accounted for 34% of total health spending in 2021, down from 36% in 2020 but higher than the 29% for 2019.

Private health insurance spending, meanwhile, grew by 5.8% to reach $1.2 trillion, or 28% of total health expenditures. "Private health insurance enrollees increased their use of medical goods and services in 2021 in part because of pent-up demand for elective surgeries and procedures that were delayed or forgone in 2020," the report says. Out-of-pocket spending rose by more than 10%, the fastest since 1985, to reach $433.2 billion.

Where the money went: Hospital spending rose by 4.4% to $1.3 trillion, representing 31% of total spending. Payments to doctors and other clinical services grew 5.6% to total nearly $865 billion, or 20% of total spending. As doctor visits rebounded last year, the number of new prescriptions jumped and retail prescription drug spending rose by about 8% to $378 billion, accounting for 9% of health outlays. "The mix of spending on drugs dispensed also contributed to increased expenditure growth, as spending for newly available, higher-price brand-name medications increased and less was spent on newly available generic medicines," the report notes. Generics account for about nine of every 10 prescriptions dispensed, but only 16% of prescription drug spending, down from more than 20% in 2017.

Covid Vaccines Saved 3.2 Million Lives: Report

More than 1 million Americans have died of Covid-19 since the first cases were recorded in the country in early 2020, but according to a new study released by The Commonwealth Fund, the toll would have been far higher if not for the development of the Covid vaccines.

Researchers found that the vaccines – first rolled out two years ago, with more than 650 million doses given – prevented 18.5 million hospitalizations and 3.2 million deaths. The vaccines also significantly reduced overall medical costs, saving the U.S. an estimated $1.15 trillion.

The numbers are likely conservative, the researchers said, and don’t attempt to account for things like the costs associated with long Covid. A separate report from the Centers for Disease Control and Prevention suggests that long Covid is a serious problem, affecting as many as 30% of those who get Covid and likely killing thousands of people.

Overall, the Commonwealth study makes a strong case for the development of the vaccines, finding them to be an excellent use of public funds. "We pay for the vaccination campaign and it works," Isaac Chun-Hai Fung, an associate professor of epidemiology at Georgia Southern University, told STAT News. "It saves us money and it saves lives."

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