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Rate of health-care spending slowed in ༿ drop seen as aberration

WASHINGTON—U.S. health-care spending reached a record $1.7 trillion in 2003, but the rate of growth slowed for the first time in seven years.

The outlay, which combines public and private health expenditures, came to an average of $5,670 per person, up from $5,317 in 2002, according to a report released Monday by the federal Centers for Medicare and Medicaid Services. The figures were adjusted for inflation.

Health and Human Services Secretary Tommy Thompson called the increase from $1.6 trillion in 2002, a rise of 7.7 percent, "good news for the public." But the spending-growth slowdown, from 9.3 percent the previous year, is likely a one-year aberration. That's because it's largely due to a halt in extra funding for Medicare providers in 2003, plus benefit cuts and tighter eligibility requirements in the Medicaid program.

Without those changes, national spending on health care in 2003—the latest year for which data are available—would have increased 8 to 8.5 percent, said Dr. Kenneth Thorpe, the chair of the health policy management department at Emory University in Atlanta. Health spending probably picked up again in 2004, Thorpe said.

"This is false good news. ... It appears to be a one-time thing. I wouldn't make too much of this," Thorpe said.

The new Medicare prescription-drug benefit, which begins in 2006, plus an aging population and likely new restrictions on the purchase of cheaper prescription drugs from Canada, probably will fuel the growth of health-care spending in the future. And because it grew nearly 3 percentage points faster than the overall economy in 2003, it consumed a record 15.3 percent of the nation's gross domestic product, the sum of all the goods and services produced. The previous high was 14.9 percent in 2002.

The increase in health-care spending also outpaced average wage growth of 2.9 percent in 2003. That fact, coupled with job losses and a struggling economy, helps explain why private health-insurance enrollment declined by nearly 1 percent in 2003 for the third year in a row.

"When health-care trends rise faster than incomes, it means that, inevitably, some people will be priced out of the health-care market," said Paul Ginsburg, the president of The Center for Studying Health System Change, a nonpartisan health-research group in Washington.

While growth in public-health spending slowed considerably in 2003—up 6.6 percent, compared with 9.3 percent in 2002—private-sector spending growth remained relatively stable.

One factor—private health-insurance premiums—grew more slowly than it did the previous year for the first time since 1996. But out-of-pocket patient spending grew 7.6 percent and was the only major health-care funding source to grow faster in 2003 than in previous years, the report found.

Consumers can expect their out-of-pocket share to grow in coming years if employers continue to shift more of the cost to employees through higher deductibles and co-payments for doctor visits and prescription drugs. But that could change, said Melinda Beeuwkes Buntin, a co-director of the Center for Health Care Organization, Economics, and Finance in Arlington, Va., a unit of the RAND Corp., a research center.

"It depends on the economy," she said. "In the current environment employers are shifting costs to employees, but if demand for workers increases, employers are less likely to make (cost-shifting) changes in benefit packages."

Growth in prescription-drug spending slowed most sharply, the study found, from 14.9 percent in 2002 to 10.7 percent in 2003. That reflects the increased use of generic drugs, drug plans with higher patient co-pays, Internet and mail-order prescription-drug sales and drugs imported from Canada.

The introduction of fewer new drugs and the availability of more drugs that no longer require prescriptions also helped. For instance, after the blockbuster allergy and decongestant drug Claritin became available without a prescription in November 2002, prescription drug sales dropped by nearly a full percentage point while over-the-counter drug sales jumped 4.4 percent, the report found.

The report also found that health insurers collected 13.6 percent more in premiums than they paid out in benefits. "This is higher than the share has been since 1984, which suggests that administrative costs and insurer profits accelerated," the report concluded.

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(c) 2005, Knight Ridder/Tribune Information Services.

GRAPHIC (from KRT Graphics, 202-383-6064): 20050110 HEALTHSPENDING

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