Prescription drug spending growth is projected to slow to 3.5 percent in 2008, down from 4.9 percent in 2007, as many consumers fill fewer prescriptions or become more willing to switch to lower-cost generic drugs in response to projected slower income growth associated with the recession. Prescription drug spending growth is expected to rebound to 4.0 percent in 2009 as projected double-digit accelerations in Medicare and Medicaid growth more than offset a continuing recession-related deceleration in private prescription drug spending growth.

Within Medicare, prescription drugs are projected to be the fastest growing component of the program's spending over the projection period, with the prescription drug share of Medicare spending increasing from 10.9 percent in 2007 to 14.7 percent by 2018.


Physician and clinical services spending is expected to grow 6.2 percent in 2008, compared with the 6.5 percent growth experienced in 2007. In 2009, physician and clinical spending is projected to grow at 6 percent.

In 2010, growth in national health expenditures is projected to decelerate to 4.6 percent, down from 5.5 in 2009. This trend is largely attributable to a projected decline in Medicare spending growth (8.0 percent in 2009 to 2.5 percent in 2010) due principally to a 21-percent cut to Medicare physician payment rates required under the Sustainable Growth Rate (SGR) formula called for in 2010 under current law. We note, however, that in every year since 2002, Congress has acted to override application of the SGR formula to reduce physician payments. If Medicare physician payment rates are not cut in 2010 and remained at 2009 levels, projected Medicare spending growth in 2010 would be 6.4 percent, 3.9 percentage points faster than the current-law projection of 2.5 percent. And projected total growth in national health expenditures would be 5.4 percent in 2010, 0.8 percentage point higher than the current-law projection of 4.6 percent.

Growth in national health expenditures is anticipated to begin accelerating in 2011 under current law and eventually reach 7.2 percent by 2018. Based on a projected economic recovery beginning in 2010, private health spending growth is expected to rebound from 4.2 percent in 2010 to 6.1 percent by 2018. Public spending growth is also projected to accelerate, from 5 percent in 2010 to 8.2 percent in 2018, in large part due to baby boomers becoming eligible for Medicare. Medicare spending growth is projected to accelerate from 6.2 percent in 2011 to 8.6 percent by 2018.

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