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Features for Senior Citizens
Slower Growth in Drug Spending Tempers Growth in
Health Expenditures
Health care spending grows at slowest pace since
1999, but nears $2 trillion
 January 9, 2007 – A sharp deceleration in Medicaid
drug spending, changes in therapy regimens, tiered copayment benefit
plans, and increased use of generic drugs slowed the rise in
prescription drug spending to 5.8 percent in 2005, a dramatic drop from
8.6 percent in 2004 and from 18.2 percent in 1999. This was a key in
helping temper U.S. health spending growth again in 2005 to the slowest
rate since 1999, the federal government reported today in the journal
Health Affairs.
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Senior Citizen Opinions & Analysis
New Health Spending Data Not Cause for Celebration
U.S. still spends twice what other
industrialized countries spend per person; growth of 6.9%
outpaces inflation and growth in wages
 By Karen Davis, President,
Commonwealth Fund
January 9, 2007 - Today’s release of new federal
data on health care spending by researchers from the Centers for
Medicare and Medicaid Services (CMS)* indicates that spending slowed for
the third straight year in 2005 and that health spending as a percent of
Gross Domestic Product held virtually constant at 16.0 percent, compared
to 15.9 percent in 2004.
Read more...
Medicare News
Medicare Solvency Ranked Third in Health Care
Priorities by Opinion Leaders
Most want Congress to cover uninsured, reduce
health care costs
January 8, 2007 – The top health care priority over
the next five years for Congress should be expanding coverage for the
uninsured, says a new survey. Reforming Medicare to ensure it's
long-term solvency came in third, just below the priority of moderating
rising health care costs. The Commonwealth Fund released the survey
today of what it says are "leading health care experts."
Read more...
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Features for Senior Citizens |
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For the third consecutive year, health spending
grew at a slower rate than the previous year, rising 6.9 percent in 2005
to nearly $2 trillion, according to the government’s annual report on
health spending. This rate is down from 7.2 percent in 2004 and 8.1
percent in 2003.
Health care spending in 2005 accounted for 16.0
percent of the gross domestic product (GDP), or $6,697 per person, up
slightly from 15.9 percent of GDP in 2004. The total increase in health
spending as a portion of GDP was less than one percentage point between
2003 and 2005, compared with a two-percentage-point increase between
2000 and 2003.
Health-sector spending typically has a lagged
relationship with economic cycles. As has occurred often with prior
recessions, health care spending and economic growth recently converged
as health spending growth slowed and the economy rebounded from the 2001
recession.
“Although health spending and overall economic
growth have converged, it is unclear whether this is temporary or
indicative of a longer-term trend,” said Aaron Catlin, an economist with
the Centers for Medicare and Medicaid Services (CMS) and the report’s
lead author.
Despite the slowdown in health care spending, the
percentage of personal income going for health care is rising. While
spending growth for prescription drugs slowed, spending for hospital,
physician, and clinical services in 2005 grew at rates similar to 2004,
with hospital spending continuing to account for the largest share of
overall spending. About one-fifth of all U.S. health spending in 2005
was used to purchase physician and clinical services.
The report, by economists from the National Health
Statistics Group in the CMS Office of the Actuary, examines national
health spending trends in the public and private sectors. The report is
issued annually and provides the most current and comprehensive data on
hospital care, physician care, nursing home care, home health care,
pharmaceuticals, and other health care goods and services.
Health Spending Becomes Less Concentrated
A separate article in the same issue of Health
Affairs notes that health care spending in the past decade has
become less concentrated among the top spenders, following two decades
in which the degree of concentration had remained stable. The reduction
in concentration stems largely from a rapid increase in spending for
prescription drugs, for which expenditures are comparatively evenly
distributed among the population, and a slower growth in hospital
inpatient spending.
“This pattern suggests that efforts to encourage
price sensitivity in prescription drug spending, such as tiered
formularies or high-deductible insurance plans, could have more
potential for cost-saving than was the case ten years ago,” said lead
author Samuel Zuvekas, an economist at the Agency for Healthcare
Research and Quality. Using data from the
Medical Expenditure
Panel Survey, Zuvekas and fellow AHRQ
economist Joel Cohen report that between 1996 and 2003, health care
spending by the top 1 percent of spenders decreased four percentage
points, from 28 percent of total spending in 1996 to 24 percent in 2003.
Among the top 5 percent of spenders, spending dropped an even greater
seven percentage points, from 56 percent of total spending in 1996 to 49
percent in 2003.
Private Insurance Premium Growth Slows For
Three Consecutive Years
The year 2005 was the third straight year in which
premium growth has decelerated, marking the slowest rate of growth since
1997. The 2005 private health insurance premium slowdown was accompanied
by slower growth in private spending across most health care services,
most notably in private payments for prescription drugs, which grew 5.8
percent in 2005 -- well below the average of 16.7 percent from 1994 to
2004. Employers picked up 74.4 percent of the tab for private health
insurance in 2005, while employees shouldered 25.6 percent. Although the
employer share grew slightly in 2005, it remains well below what
employers were financing in 1999. The share of household personal income
spent on health care grew from 5.4 percent in 2001 to 6.0 percent in
2005.
Medicare, Medicaid Growth Slows
Medicare spending rose 9.3 percent to $342 billion
in 2005, down slightly from 10.3 percent in 2004 -- a drop largely
attributable to slower growth in spending for most health care services.
Despite the slowdown, Medicare spending growth outpaced its average
annual growth rate of 6.4 percent during 1994-2004. Although growth in
Medicare spending for prescription drugs outpaced growth in overall
Medicare spending, it represents only a small fraction of total Medicare
spending and does not reflect the full Medicare Part D drug benefit,
which began in 2006.
Medicaid spending growth slowed to 7.2 percent in
2005, the fourth consecutive year in which spending growth slowed. This
was driven by states’ efforts to cut or freeze payments, cost-control
measures for prescription drug spending, increased efforts to prevent
fraud and abuse, and greater use of disease management programs.
Despite the slower growth in Medicaid spending, a
little more than one-third of all states had Medicaid budget shortfalls
in fiscal year 2005.
Consumers’ Out-Of-Pocket Spending Rises
Out-of-pocket spending for health care grew to
$249.4 billion in 2005, compared with $235.8 billion in 2004 and $224.5
billion in 2003. Payments for prescription drugs represent the largest
share of out-of-pocket spending (20.4 percent).
Spending Highlights By Sector:
Hospitals. Hospital spending reached $611.6 billion
in 2005, up from $566.9 billion in 2004. The growth in hospital spending
remained steady between 2001 and 2005, averaging 7.9 percent during this
period. Hospital spending accounts for 31 percent of all health care
dollars -- the largest share of overall health spending. Since 2001,
factors such as increased compensation, malpractice costs, and
hospitals’ stronger negotiating power with private payers have driven
hospital spending trends. For example, between 2000 and 2005, growth in
hospital payrolls (as defined by the product of employment, average
weekly hours, and average hourly earnings) averaged 8.2 percent
annually, close to the annual average for overall hospital spending.
Prescription Drugs. Private sources
accounted for almost 73 percent of prescription drug spending in 2005,
and private spending growth was 6.0 percent, down slightly from 7.2
percent in 2004. This slowdown was driven in part by reduced use of
non-narcotic pain relievers and the removal of drugs such as Vioxx from
the market. Overall growth in drug prices remained steady from 2004 to
2005, increasing 3.5 percent. In 2005 manufacturers increased prices for
brand-name prescription medications by an average of 6.0 percent.
Physicians. Spending on physician and
clinical services in 2005 reached $421.2 billion, accounting for the
second-biggest category of health care spending. Average growth for
spending on physician and clinical services was 7.9 percent since 2000.
This trend slowed to 7.0 percent in 2005, down from 7.4 percent in 2004,
driven by public and private spending on these services.
Home Health Care and Nursing Homes. Spending
for nursing facilities in 2005 increased 6.0 percent to $121.9 billion,
up from 4.1 percent growth and $115.0 billion in 2004. Public dollars
paid for almost two-thirds of nursing home care in 2005. Home health
care spending in 2005 experienced double-digit growth for the third
straight year, increasing 11.1 percent compared with 12.3 percent in
2004 and 11.1 percent in 2003. Home health care was the fastest-growing
health care spending category between 2003 and 2005.
In February 2007, the CMS will forecast health care
spending trends for the next decade. Those data will be published in
Health Affairs.
Editor's Notes:
Health Affairs,
www.healthaffairs.org, published by Project HOPE, is a bimonthly
multidisciplinary journal devoted to publishing the leading edge in
health policy thought and research. Copies of the January/February 2007
issue will be provided free to interested members of the press. Address
inquiries to Christopher Fleming at Health Affairs, 301-347-3944,
or via e-mail,
press@healthaffairs.org.
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