Health spending slowed in '07, but that's cold comfort


WASHINGTON — U.S. health care spending in 2007 grew at its lowest rate in nine years, due mainly to a slowdown in prescription drug spending and lower administrative costs for the Medicare program, according to a new government report released Monday.

While the report doesn't reflect most of the economic downturn that began in December 2007, its authors say that health spending historically has been insulated from the effects of a sour economy. However, experts say this could change given the uncertain economic climate and the increased shifting of payment responsibilities to consumers.

Public and private outlays for health care reached $2.2 trillion, or $7,421 per person in 2007, up 6.1 percent from 2006, the Centers for Medicare and Medicaid Services reported.

The slower growth rate continues a trend that began in 2002. Health spending continued to eat up an increasing share of nation's Gross Domestic Product, growing from 16 percent in 2006 to 16.2 percent in 2007. Medical spending growth still outpaces overall economic growth, which increased only 4.8 percent in 2007.

"This is another reminder that the cost of health care continues to be a real and pressing concern facing the American public and the federal government," said Kerry Weems, Acting Administrator of the Medicare and Medicaid centers, a branch of the Department of Health and Human Services. "This report is a stark reminder that we must redouble our ongoing efforts to reform the delivery of health care services in this country to bring about the goal of affordable, high-quality health for all Americans."

More than half the slower growth in overall health care spending can be traced to slower retail prescription drug spending, which grew only 4.9 percent in 2007. That's the lowest annual growth rate since 1963, said Micah Hartman, a CMS statistician and the lead author of the report.

Hartman credited the increased use of cheaper generic drugs and slower growth in drug prices for the spending slowdown. Nationally, generic drugs accounted for 67 percent of prescriptions written in 2007, up from 63 percent in 2006 and 60 percent in 2005. In addition, prescription drug prices grew only 1.4 percent in 2007, compared with 3.5 percent in 2006.

The new availability of generic versions of blockbuster drugs such as Flonase, Pravachol, Toprol-XL, Ambien and Zoloft also helped curb prescription drug spending in 2007, Hartman said. Growing concerns about drug safety also played a role. Hartman said the Food and Drug Administration issued 68 safety warnings on prescription drugs in 2007 compared to 58 in 2006 and 21 in 2003.

After administrative costs for the Medicare program jumped 62.5 percent when the prescription drug benefit was launched in 2006, Medicare's administrative costs grew 10.7 percent in 2007. Overall Medicare spending grew 7.2 percent to $431.2 billion in 2007, compared with an 18.5 percent increase in 2006.

Medicaid program spending grew 6.4 percent in 2007 to $329.4 billion.

Spending for private health insurance premiums increased 6 percent to $775 billion last year, the same rate as in 2006, but down from 10.7 percent in 2002. The slower growth rates reflect fewer small employers offering health coverage and growing enrollment in health savings accounts and high-deductible health plans.

Out-of-pocket spending by patients grew 5.3 percent in 2007 to $268.6 billion, up from 3.3 percent growth in 2006. The portion of household income going for health care grew to 6 percent in 2007. That's up from 5.4 percent in 2001.

Other highlights from the report include:

  • Spending for hospital care grew 7.3 percent to $696.5 billion in 2007.
  • Spending for physician and clinical services grew 6.5 percent to $478.8 billion in 2007 — the same growth rate from 2006.
  • Spending for home health care services grew 11.3 percent to $59 billion in 2007, while spending for nursing home care increased 4.8 percent to $131.3 billion.

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