Health Care Spending Growth Slows

U.S. health care spending increased 6.9% in 2005, marking the third consecutive year that the growth rate declined, according to an annual government report published in the January/February issue of Health Affairs, the New York Times reports. The growth rate was the lowest reported since 1999 (Pear, New York Times, 1/9).

The health spending growth rate in 2004 was 7.2% (Alonso-Zaldivar, Los Angeles Times, 1/9).

The report, prepared by the CMS Office of the Actuary, states, "This might be an encouraging sign for the individuals, businesses and governments that finance health care; however, it is unclear whether this ... is temporary or indicative of a long-term trend" (Appleby, USA Today, 1/9). According to the report, the U.S. spent $1.988 trillion, or $6,697 per person, on health care in 2005. State and federal governments paid about 40% of health care costs, totaling $736.3 billion (Zhang, Wall Street Journal, 1/9).

Though the rate of growth in health spending slowed, it continued to rise more quickly than the economy as a whole, wages, and general inflation (Los Angeles Times, 1/9). Health spending accounted for 16% of the gross domestic product in 2005, up from 15.9% the previous year.

Public-sector spending on health care increased 7.8% in 2005, compared with a 7% growth rate for businesses and a 6.2% increase for households, according to the report (Zhang, Wall Street Journal, 1/9).

A slowdown in prescription drug spending growth was the largest reason for the lower overall growth rate during 2005, according to the report (Krasner, Boston Globe, 1/9). Spending on prescription drugs increased 5.8% in 2005, marking the first time since 1993 that drug spending grew more slowly than overall health care costs.

The drug spending growth rate has declined each year since 1999, when it peaked at 18.2%. Drug spending totaled $200.7 billion in 2005, representing 10 cents of every dollar spent on health care (New York Times, 1/9).

Health insurers have slowed the growth of drug spending with tiered plans that have patients pay larger copayments for brand-name drugs than generic drugs, the Globe reports. Separate insurance efforts have encouraged the use of less expensive drugs, with more expensive drugs being used only when cheaper products are ineffective (Boston Globe, 1/9).

Medicaid spending on prescription drugs increased 2.8% in 2005, coming after an average annual increase of 15.4% from 1994 through 2004, according to HHS economist Aaron Catlin, the principal author of the report. Catlin said that 42 states had slower Medicaid drug spending increases in 2005 than in 2004 by taking such actions as pooling their buying power, negotiating discounts with manufacturers and increasing the use of generic drugs (New York Times, 1/9).

Other contributing factors to the drug spending slowdown were pharmaceutical companies' decelerated introduction of new drugs, as well as the immediate aftermath of the withdrawal of Vioxx from the market because of safety concerns, the report found. The report does not include data on the Medicare prescription drug benefit, which was implemented in 2006 (Wall Street Journal, 1/9).

The report also contains the following findings:

• Home health care was the fastest-growing spending category in 2005, increasing 11% in 2005 -- the third consecutive year of double-digit growth. Spending on home health care totaled $47.5 billion.
  


• Spending on hospital care increased 7.9% in 2005, while spending on physicians increased 7% (New York Times, 1/9).
  


• Health insurance premium rates increased 6.6% in 2005, "continuing a moderating trend seen in the past couple of years," USA Today reports.
  


• Out-of-pocket expenses for workers increased 5.8% in 2005, up from 5% in 2004 (USA Today, 1/9).