Health Care Spending Growth Slowed in 2003, CMS Report Finds
The "torrid pace of growth" in U.S. health care spending "cooled a bit" in 2003 -- in part because of state reductions in the Medicaid program and slower growth in prescription drug spending -- but the amount of spending, about $1.7 trillion, exceeded 15% of the gross domestic product for the first time, according to an annual CMS report published in the January/February issue of Health Affairs, the New York Times reports. The report found that total health care spending in 2003 increased by 7.7%, compared with a 9.3% increase in 2002 (Pear, New York Times, 1/11). Total health care spending in 2003 accounted for 15.3% of GDP and exceeded overall U.S. economic growth by three percentage points, the report found (Strahinich, Boston Herald, 1/11).
According to federal officials, the slower growth in health care spending in 2003 resulted in large part because of one-time state changes in the Medicaid program and the expiration of mandated higher supplemental Medicare reimbursements to hospitals and nursing homes (Lueck, Wall Street Journal, 1/11). Medicaid in 2003 accounted for about one-third of the total $765 billion in public funds spent on health care, according to the report (Japsen, Chicago Tribune, 1/11).
In 2003, spending on public health care programs for low-income residents increased by 6.6%, compared with 9.7% in 2002, the report found (Lipman, Atlanta Journal-Constitution, 1/11). Although most states prior to 2003 did not reduce funds for public health programs and used "state reserves, taxes and tobacco funds" to help cover the cost, 34 states in 2003 increased eligibility requirements and reduced benefits for such programs, the report said (Chicago Tribune, 1/11).
The report said that although payments for private health insurance, in the form of premiums, increased by 9.3% in 2003 -- compared with 10.6% in 2002 -- administrative costs and health insurer profits "accelerated as benefit growth decelerated" (New York Times, 1/11). The net cost of health insurance -- the difference between premiums and benefits -- increased from 12.8% as a share of premiums in 2002 to 13.6% in 2003, the highest rate since 1984, the report found (Atlanta Journal-Constitution, 1/11).
The report also found that total out-of-pocket health care spending increased by 7.6% in 2003, compared with 6% in 2002. According to the report, copayments for physician visits -- which increased by 8.3% in 2003, compared with 5.1% in 2002 -- contributed to the increase in out-of-pocket health care spending, and prescription drugs accounted for almost 25% (Wall Street Journal, 1/11). The report found that out-of-pocket health care spending increased at "nearly the same rate as overall health spending but faster than in recent years." Analysts attributed the rise in out-of-pocket health care spending to increases in the number of employers who have shifted more costs to workers and the number of uninsured U.S. residents (Chicago Tribune, 1/11).
According to Cynthia Smith, a CMS researcher and principal author of the report, employers in recent years "have been more willing to pass on cost increases to employees by increasing copayments for physician visits, requiring separate hospital deductibles and raising drug plan copayments."
The growth in prescription drug spending -- which increased by 10.7% in 2003, compared with 14.9% in 2002 -- slowed "more sharply than growth of any other service," according to Smith. Sales of prescription drugs in 2003 increased to $179.2 billion. According to the Times, the report, which found that prescription drugs accounted for 23% of out-of-pocket health care spending but only 11% of total health care spending, "indicated why drug costs remain a combustible political issue" (New York Times, 1/11).
In 1998, 17% of out-of-pocket health care spending was related to prescription drugs, the Wall Street Journal reports (Wall Street Journal, 1/11). The study did not include the estimated $1.1 billion that consumers paid to purchase prescription drugs from Canadian pharmacies. Sales of generic medications in 2003 increased at twice the rate of brand-name treatment sales, the report found. According to the report, "When offered a choice, consumers opt for a generic drug almost 90% of the time in chain drug stores."
The report also found:
- Health care spending in 2003 averaged $5,670 per resident, compared with $5,317 in 2002;
- Private health care spending increased by 8.6% in 2003, compared with 9% in 2002 (New York Times, 1/11);
- Private spending on physician services increased by 8.5% in 2003, compared with 8.2% in 2002;
- Public spending on physician services decreased from 8.1% in 2002 to 6.7% in 2003 (Wall Street Journal, 1/11);
- Private health insurance enrollment decreased by about 1% in 2003, in part because of "job losses and a struggling economy" and because the increase in health care spending "outpaced average wage growth of 2.9% in 2003," the Philadelphia Inquirer reports (Pugh, Philadelphia Inquirer, 1/11).
- Total Medicaid spending, which rose by 12.1% in 2002, increased by 7.1% in 2003 to $267 billion (New York Times, 1/11). Medicaid spending accounted for 16% of total health care spending in 2003 (Chicago Tribune, 1/11);
- Medicaid spending on hospitals, which many states froze, increased by 5.3% in 2003, about six percentage points lower than in 2002;
- Medicaid spending on nursing home care in 2003 increased by 1% to $51 billion, compared with 8.1% in 2002;
- Total spending on Medicare in 2003 increased by 5.7% to $283.1 billion, compared with 7.6% in 2002;
- Medicare spending on nursing homes "increased only 1.3% in 2003, following three years of rapid growth that averaged 16.2% a year between 1999 and 2002"; and
- Hospital care spending, which increased by 6.5% to $515.9 billion for 2003, accounted for almost one-third of total health care spending; such spending rose by 8.5% in 2002 (New York Times, 1/11).
According to the Journal, the report indicates "more tough choices for employers and for patients" in future years (Wall Street Journal, 1/11). Although Smith did not comment on whether she expects slower growth in health care spending in future years, she said that "factors unique to 2003" likely led to the slower growth for that year (Atlanta Journal-Constitution, 1/11). Smith said, "I don't think we're going to see a deceleration of this size coming from public programs" in 2004, adding, "Some of the factors that tempered spending in 2003 are one-time in nature and not expected to recur" (Boston Herald, 1/11).
According to the Inquirer, the implementation of the new Medicare prescription drug benefit in 2006, as well as an "aging population and likely new restrictions" on reimportation, "probably will fuel the growth of health care spending in the future" (Philadelphia Inquirer, 1/11). Consumer advocacy groups said that reductions in public health care spending and increases in private costs "were key drivers in pushing the number of uninsured Americans to a record 45 million in 2003," the Tribune reports (Chicago Tribune, 1/11).
Although the Bush administration has considered changes to Medicaid, Ron Pollack, executive director of Families USA, recommended against such changes because the report indicates that "children and seniors, who are the predominant folks who benefit from Medicaid, are bearing a disproportionate brunt of the cuts in services" (Atlanta Journal-Constitution, 1/11).
Bush administration officials were "quick to hold out the report as an example of its successful initiatives to slow spending on health care services," the Chicago Tribune reports. HHS Secretary Tommy Thompson said in a statement, "This is good news for the public and our health care system and is the result of changes designed to slow down the growth in spending. But we have more to do before we can declare victory over rising health care costs" (Chicago Tribune, 1/11). Thompson also said that the slower growth in health care spending in 2003 likely would not continue in future years (Philadelphia Inquirer, 1/11).
A recent Hewitt Associates survey of more than 500 large U.S. employers found that they expect health care spending to increase by 12% in 2005. "Health care spending is still at a level that's unsustainable for both employers and individuals. We're still in need of changes in private-sector health care thinking as well as public-sector reforms in order to be competitive from a global standing," Tom Beauregard of Hewitt Associates said (Boston Herald, 1/11).
Jill Yegian, senior program officer at the California HealthCare Foundation, said, "Although it is clearly good news ... it is still a substantial rate of increase and far higher than the increase we see in inflation and wages" (Forsberg, San Francisco Chronicle, 1/11).
Kenneth Thorpe, chair of health policy management at Emory University, said, "This is false good news. ... It appears to be a one-time thing. I wouldn't make too much of this" (Philadelphia Inquirer, 1/11).
NPR's "Morning Edition" on Tuesday reported on the study. The segment includes comments from Beauregard and Smith (Rovner, "Morning Edition," NPR, 1/11). The complete segment is available online in RealPlayer.This is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.