Health Care Spending Growth Slows as Proportion of GDP Hits High
U.S. health care spending increased 7.9% in 2004 to nearly $1.9 trillion, outpacing inflation and wage growth and amounting to a record 16% of the nation's gross domestic product, according to an annual CMS report published in the January/February issue of Health Affairs, the Miami Herald reports.
The combined health care spending by consumers, businesses and government totaled $6,280 per person in 2004, compared with $5,670 in 2003 (Pugh, Miami Herald, 1/10). The rate of growth in health care spending was the lowest since 2000's spending increase of 6.3%.
The slower growth rate in 2004 is attributable in part to slower growth in prescription drug sales, according to the report (Lueck, Wall Street Journal, 1/10).
The report states, "Medical spending continues to rise faster than wages and faster than economic growth, and workers are paying much more in health care premiums than just a few years ago." The report adds, "Continued spending growth will require difficult trade-offs for businesses, households and governments as other spending also rises. These trade-offs are more stringent for those with fewer resources" (Alonso-Zaldivar, Los Angeles Times, 1/10).
According to the report, the overall cost of health care in the U.S. doubled between 1993 and 2004. Cost increased by nearly $140 billion from 2003 to 2004 (Kaufman/Stein, Washington Post, 1/10).
Spending on retail prescription drugs increased by 8.2% in 2004, the first year of single-digit growth since 1994 (Pear, New York Times, 1/10). According to the report, the slower growth in prescription drug spending occurred in part because of a shift toward greater use of generic drugs and over-the-counter treatments as several brand-name drugs lost patent protection.
In addition, safety concerns about some drugs and the increased use of mail-order pharmacies contributed to the slower growth, according to the report (Wall Street Journal, 1/10).
Cynthia Smith, the lead author of the report, said other factors included a slower pace in the introduction of expensive new drugs and higher drug copayments. Drug spending accounts for about 10% of all health care spending, according to the Post (Washington Post, 1/10).
Government economist Stephen Heffler has said that the new Medicare prescription drug benefit will have "only a minor impact on overall health spending" but will increase the federal government's share of drug costs (New York Times, 1/10).
Spending for hospital and physician services amounted to 62% of the overall spending increase, driven largely by new treatments, rising prices and expanding use of medical services, according to the report (Miami Herald, 1/10). Spending for hospital care increased 8.6% to $570.8 billion, while spending for doctors increased 9% to $399.9 billion, with each area showing the greatest increase since 1991 (New York Times, 1/10).
Hospital spending growth totaled about one-third of overall health care spending growth. The authors of the report said compensation costs were a leading factor in hospital spending growth, and other factors included liability costs and a higher volume of services (Wall Street Journal, 1/10).
An additional factor was "an upswing in construction of new hospitals," the Post reports (Washington Post, 1/10).
An 11.1% increase in Medicare spending for physicians in part resulted from doctors "performing more services, and more complex services, for which they receive higher fees from Medicare," the New York Times reports (New York Times, 1/10).
The report also contains the following findings:
- Consumer out-of-pocket spending increased by 5.5% in 2004 but decreased as a share of total health care spending for the sixth straight year. Consumers spent $557 billion on health care in 2004 (Miami Herald, 1/10).
- Private health spending increased by 7.6% in 2004, down from an 8.6% increase in 2003. Payments for private benefits increased by 8.4% in 2004, a slower increase than recent years. Growth in costs for health care premiums also decreased, "as employers changed the types of health benefits they offer and workers switched to lower-cost options," the Journal reports (Wall Street Journal, 1/10).
- Medicare spending increased by 8.9% in 2004 to $309 billion, in part because of a new law that increased payments to HMOs and rural health care providers.
- Medicaid spending increased by 7.9% in 2004 to $290.9 billion, down from an 11% increase in 2002 and a 9% increase in 2003. The slower growth was in part due to efforts to hold down drug costs (New York Times, 1/10).
- Spending on home health services for the elderly and disabled, "while only a small portion of overall spending," increased more than any other category, up 13.3% in 2004, the Herald reports (Miami Herald, 1/10). Spending for home care totaled $43.2 billion in 2004. Medicare spending for home care increased by 19.3% in 2004.
- Skilled nursing home spending increased by 4.3% in 2004 to $115 billion, with Medicaid spending on nursing homes increasing by 3%, down from 5.3% in 2003. Medicaid accounts for 44% of nursing home expenditures (New York Times, 1/10).
Heffler said, "To make a judgment whether we're in or out of the woods -- I don't think we can do that with this report" (Wall Street Journal, 1/10).
HHS Secretary Mike Leavitt said, "We must build on steps already taken -- the new Medicare prescription drug benefit, advancing health-information technology and encouraging a prevention-oriented society -- to find innovative, market-based ways to control costs" (Miami Herald, 1/10).
Paul Ginsberg, president of the Center for Studying Health System Change, said slowed spending increases in 2004 should be viewed within the context of abnormally high rates of growth in the immediately preceding years, when consumers forced insurers to ease restrictions on managed care (New York Times, 1/10).
Robert Berenson, a senior fellow at the Urban Institute, said, "It's encouraging that spending came down relatively, but it's still two to three times the underlying cost of living, and nobody's got an idea what to do about it."
Marilyn Moon, director of the health program at the American Institutes for Research, said, "There is a certain cycle to all this. One area gets special attention and people go through extra efforts, but you can only keep those extra efforts up for so long" (Wall Street Journal, 1/10).
Edward Howard, executive vice president of the Alliance for Health Reform, said, "This is an alarming situation, but it's more like a creeping infection than a broken bone, and so people get used to it. Frankly, I don't see major change until people who have some sort of organized political influence start hurting a little more" (Washington Post, 1/10).
The report is available online.