Growth Rate of Health Care Spending To Decrease in 2003, CMS Study Finds

U.S. health spending is projected to continue increasing in 2003, but the growth rate is expected to decrease for the first time in six years, according to a report by CMS, the Dallas Morning News reports (Yu, Dallas Morning News, 2/11). The report, published on the Health Affairs Web site, estimates that U.S. spending on health care increased 7.8% to about $1.7 trillion in 2003, or $5,808 per resident. In 2002, U.S. health spending grew 9.3%. According to the report, slowed spending growth is expected because of decreases in states' Medicaid spending and a small decrease in medical prices, USA Today reports (Appleby, USA Today, 2/12). The report forecasts that Medicare spending in 2003 increased 5.2%, compared with an 8.4% growth rate in 2002 (Dallas Morning News, 2/11). According to the report, estimated Medicare spending decreased in part because of the expiration of temporary provider payment increases, CongressDaily reports (CongressDaily, 2/11). Esimated Medicaid spending increased 7.5% in 2003, compared with 11.7% growth in 2002. The decreased growth rate is because many states, facing budget shortfalls, cut Medicaid spending and tightened eligibility requirements. Monthly spending on private health plan premiums increased an estimated 10.4% in 2003, compared with 11.4% in 2002 (Dallas Morning News, 2/11). According to the report, slowed spending in the private sector is related to less demand for health services and a projected climaxing of the insurance "premium cycle" of rises and declines (CongressDaily, 2/11). The report also projected that spending for hospital care increased 6.5% to about $518.1 billion in 2003, and spending for physician and other clinical services increased 6.9% to $362.8 billion in 2003. Spending for prescription drugs remained the fastest growing sector in health care, increasing an estimated 13.4% to $184.1 billion in 2003 (Dallas Morning News, 2/11). The prescription drug spending growth rate is projected to continue to fall from a peak of 19.7% in 1999, according to the report, the Hartford Courant reports. The report said the deceleration in the prescription drug spending growth rate is related to the introduction of multi-tier benefit plans, the slowed pace of new drug introductions and the loss of patent protection on some major drugs (MacDonald, Hartford Courant, 2/12).

Health costs accounted for an estimated 15.3% of the gross domestic product in 2003, up from 14.9% of GDP in 2002, and the fifth consecutive year that "more of the nation's resources (were) allocated to health care," the report said (USA Today, 2/12). The report estimated that health spending will increase from 15.5% of GDP in 2004 to 18.4% of GDP in 2013 -- $3.4 trillion or $10,709 per person. In addition, the report estimated that overall growth in U.S. spending on health care will decrease to 7.2% in 2004, from a high of 9.3% in 2002, and remain at about that level through 2013 (Hartford Courant, 2/12). The 7.2% spending growth rate is expected to be about 3.5 percentage points higher than inflation in the rest of the economy, Reuters reports (Rovner, Reuters, 2/11). The report estimated that growth in private health plan premiums will decrease to 7.1% in 2005 because of slowdowns in the cost of medical benefits and changing trends in the insurance market. The report also predicted that hospital spending growth will decrease to 6.5% in 2004 because of changes to Medicaid, easing of wage pressures by hospital workers and declining use of hospital services. Prescription drug spending growth will also decline, decreasing to 12.9% in 2004, the report said (Hartford Courant, 2/12). Consumers' out-of-pocket costs are projected to increase from 2.7% in 2002 to 3.1% in 2013.

Lead author Stephen Heffler of CMS said that the report does not include estimates of the impact of the new Medicare law (HR 1) (Reuters, 2/11). The new law will "significantly affect the payers for prescription drugs beginning in 2006," the report said (Dallas Morning News, 2/11). However, CMS researchers said that while the new law will significantly affect who pays for the prescription drugs, by shifting the costs from private plans to the government, it will not significantly impact how much money is spent on medications, the Boston Herald reports (Heldt Powell, Boston Herald, 2/12). "Our story, with or without the legislation, doesn't change much," Heffler said (Sherman, AP/Newport News Daily Press, 2/11).

Paul Ginsburg, an economist at the Center for Studying Health System Change, said that because health costs will continue to outpace inflation, there will be "more people who find they just can't afford health care or insurance" (USA Today, 2/12). Drew Altman, president and CEO of the Kaiser Family Foundation, said, "What you're going to pay for health care is still going to go up," adding, "The rate of increase will slow, but the numbers still will be ugly." Heffler said that the numbers "demonstrate that society continues to demand and is willing to pay for medical care that consumes more of its income" (Hartford Courant, 2/12). Ira Loss, an analyst for the Washington Analysts, said that the increase in health care spending is "[t]o some extent ... inevitable given the demographics -- there are many more people who will be living longer in the coming years" (Boston Herald, 2/12). Henry Aaron, an economist for the Brookings Institution, said that upcoming retirement of baby boomers will force the government to choose either cutting Medicare or enacting tax increases, the Courant reports. Aaron added cost pressures will create a "tug-of-war between employers and employees" over the increasing health costs (Hartford Courant, 2/12). The report is available online.