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Health Care Spending Rate Decreased Again in 2004
CMS report shows it has increased as share of GDP
Jan. 10, 2006 - The growth in health care spending
in the U.S. slowed for the second straight year in 2004, according to a
report released today by the Centers for Medicare & Medicaid Services
(CMS). Spending in 2004 rose 7.9 percent, which was slower than the 8.2
percent growth in 2003 and the 9.1 percent growth in 2002. Yet, the
share of the nations Gross Domestic Product (GDP) spent on health care
grew 0.1 percentage point to 16.0 percent in 2004.
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National Health Spending In 2004: Recent
Slowdown Led By Prescription Drug Spending
U.S. health care spending rose 7.9 percent
to $1.9 trillion in 2004, or $6,280 per person. Health spending
accounted for 16 percent of gross domestic product (GDP), nearly
the same as in 2003. The pace of health spending growth has
slowed, compared with the 20002002 period, for both public and
private payers. Hospital spending accounted for 30 percent of
the aggregate increase between 2002 and 2004, and prescription
drugs accounted for an 11 percent sharesmaller than its share
of the increase in recent years and much slower in absolute
terms.
Read the full report with extra details in Health Affairs
magazine click. NOTE: To get full report you do
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"While the growth rate is declining, the cost of
health care continues to be a concern for government, business,
individuals and families, 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."
As we move forward, the new Medicare law and the
new prescription drug coverage will help even more to keep costs in line
while improving quality, said CMS Administrator Mark B. McClellan,
M.D., Ph.D.
The report, issued annually by CMS Office of the
Actuary, was published today in the journal Health Affairs. It shows
that health care spending was $1.9 trillion in 2004, or $6,280 per
person. It includes data through 2004, the most recent year for which
actual numbers are available. A report on projected spending will be
published in the coming months.
The share of the nations Gross Domestic Product
(GDP) spent on health care grew 0.1 percentage point to 16.0 percent in
2004. This was a smaller increase in the share of GDP than experienced
in recent years as economic growth in 2004 grew at its fastest rate
since 1989.
Recent trends reflect a shift in growth between
hospital and prescription drug spending. In the mid-to-late 1990s,
managed care coupled with the effects of the 1997 Balanced Budget Act
suppressed hospital spending growth.
One of the most important factors in the report was
slower growth in prescription drug spending, which has contributed to
slower overall spending growth over the past few years. In 2004,
prescription drugs accounted for only 11 percent of the growth in
national healthcare expenditures, smaller than its share of the increase
in recent years.
In addition, the rate of growth in prescription
drug spending - at 8.2 percent in 2004 - is slower in absolute terms
than in previous years.
The share of personal health care spending growth
associated with prescription drugs has declined since 2000, coincident
with a higher share of spending growth for hospital, physician, and home
health services. Prescription drug spending had accounted for 23 percent
of the growth in personal health spending between 1997 and 2000, but by
2002-2004 it accounted for only 14 percent.
On the other hand, hospital spending accounted for
28 percent of the growth in personal health spending between 1997 and
2000 and increased to 38 percent by 2002-2004. Spending for physician
services accounted for 29 percent of the total growth in personal health
spending in 2004, up from an average 25 percent share in the 2000-2002
period.
In 2004, private payers played a greater role in
slowing spending than public payers. Private spending growth slowed to
7.6 percent in 2004 compared with 8.6 percent in 2003.
Out of pocket payments grew 5.5 percent in 2004,
slower than aggregate health spending growth and slower than private
insurance premiums, both in aggregate and on a per enrollee basis.
In comparison with 2004 per enrollee private health
insurance premium growth of 8.4 percent, growth in 2002 was 11.5 percent
and in 2003, 10.4 percent.
Federal, state, and local government spending for
health care rose 8.2 percent in 2004.
Public spending continues to be dominated by
Medicare ($309 billion in 2004), whose growth rebounded in 2004 in part
due to the Medicare Prescription Drug, Improvement and Modernization Act
of 2003 (MMA) that raised payments for physicians, capitated health
plans, and rural and other providers.
Combined with increases in the use of physician and
home health services, these factors contributed to more than a
2-percentage point rise in Medicare spending growth to 8.9 percent in
2004.
Medicaid spending reached $291 billion in 2004,
comprising 15 percent of national health spending. In contrast to the
acceleration in Medicares spending, Medicaid spending growth
decelerated from 8.8 percent in 2003 to 7.9 percent in 2004, reflecting
continued cost containment efforts from states that contributed to a
marked slowdown in spending growth for prescription drugs.
Hospital spending, nearly one-third of total
national health expenditures, increased 8.6 percent in 2004. Public
spending for hospital care increased 7.9 percent in 2004, up from an
increase of 6.2 percent in 2003 as both Medicare and Medicaid hospital
spending grew faster than in the previous year. Hospital spending growth
by private payers was stable, rising 9.6 percent in 2004. The 2004
growth in hospital spending accounted for 33 percent of the overall
increase in health spending, greater than its 30 percent share of
aggregate spending.
Prescription Drugs-Spending for prescription drugs
increased 8.2 percent in 2004 compared to growth of 10.2 percent in 2003
and 14.3 percent in 2000-2002. As spending growth for prescription drugs
nearly converged with that of overall health spending, it accounted for
a steady 11 percent of aggregate health spending.
Factors contributing to this slowing trend were
rapid growth in use of lower-priced generic drugs through tiered benefit
plans, increased over-the-counter use of anti-ulcerants and
antihistamines, a shift towards greater mail order dispensing, and
reduced consumption of certain drugs due to concerns about their safety.
In contrast to the overall trend, growth in out-of-pocket spending for
drugs outpaced private health insurance spending growth for drugs in
2003 and 2004.
Spending for physician services grew 9.0 percent in
2004, nearly the same as the 8.6 percent increase experienced in 2003.
Public spending growth accelerated from 8.9 percent in 2003 to 9.9
percent in 2004, in large part due to increased use of Medicare
services.
Spending for freestanding home health agencies rose
more rapidly than any other service category, increasing 13.3 percent in
2004. Public spending rose 17.6 percent for home health services,
accounting for 74 percent of such spending. Double-digit growth in
Medicare spending for home health services (a 19.3 percent increase in
2004) stems in part from rapid growth in home-based hospice services
that averaged annual growth of 27 percent between 2000 and 2004.
Medicare spending for freestanding home health services that excludes
hospice has grown an average of 12.5 percent per year since 2000.
Medicare spending for services provided by skilled
nursing facilities (SNFs) rose 4.3 percent in 2004.
Medicaid, however, is the largest public source of
funding for nursing homes and accounts for nearly 40 percent of such
spending. Medicaid spending has been influenced by upper payment limit
financing methods that have recently been restricted. This caused
Medicaid spending for nursing homes to slow from an average 5.9 percent
during 2000-2002 to growth in 2004 that is close to the average 3.2
percent growth experienced in 1994-1999.
"This report confirms that consumers are benefiting
from the widespread adoption of health insurance plans' prescription
drug tools and techniques. Increased access to generics, tiered
formularies, step therapy and mail-order programs have become an
integral part of health benefits packages and are helping meet
consumers' demand for more affordable medicine," said Karen Ignagni,
President and CEO of America's Health Insurance Plans (AHIP) in a
statement issued after the CMS announcement.
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