Health Care Spending In 2007 Increased At Lowest Rate In Nine Years, With Prescription Drug Spending Growth Slowing To Lowest Rate Since 1963, Study

Main Category: Health Insurance / Medical Insurance
Also Included In: Public Health
Article Date: 07 Jan 2009 - 2:00 PDT

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U.S. health care spending by both the public and private sectors grew at a rate of 6.1% to $2.2 trillion in 2007, down from growth of 6.7% in 2006, according to a study by federal auditors published Tuesday in the journal Health Affairs, the Wall Street Journal reports (Fuhrmans/Zhang, Wall Street Journal, 1/6). The 2007 growth rate is the slowest recorded since 1998, according to the report, which was prepared by analysts from the CMS Office of the Actuary (Young, The Hill, 1/6). However, health care spending consumed 16.2% of the U.S. gross domestic product in 2007, up from 16% in 2006, "suggesting its share of GDP will climb as the economy remains mired in a protracted recession," the Journal reports (Wall Street Journal, 1/6).

More than half of the drop-off in spending growth can be linked to decreased spending on prescription drugs, according to the report (Pugh, McClatchy/Miami Herald, 1/6). Spending on drugs rose by 4.9% to $227.5 billion in 2007, compared with an increase of 8.6% in 2006 and a yearly average of 9.4% from 2001 to 2006. Lead study author Micah Hartman, a statistician for the CMS Office of the Actuary, said the drop in drug outlays can be attributed to increased use of lower-cost generic drugs, slower growth for drug prices and safety concerns that have decreased sales of some drugs (Pear, New York Times, 1/6). FDA in 2007 issued 68 black box warnings -- its most severe warning -- to appear on drug labels, compared with 58 in 2006 and 21 in 2003. Insurers are encouraging the use of generics by charging lower copayments for certain drugs and higher copays for others that they may want consumers to avoid for safety and financial reasons. Several grocery chains and large retailers also have contributed to the trend through generic drug discount programs. In addition, several top-selling brand-name drugs lost patent protection in 2006, allowing generic competitors to enter the market (Freking, AP/Philadelphia Inquirer, 1/6).

Prescription drugs made up 10% of all health care spending in 2007, according to the report. Spending on hospitals, which accounted for 31% of health care outlays in 2007, increased by 7.3% to $696.5 billion, compared with an increase of 6.9% in 2006, the report states. Spending on doctors, which accounted for 18% of health care outlays in 2007, grew by 5.9% to $393.8 billion, compared with an increase of 6.4% in 2006, according to the report (New York Times, 1/6).

The report also showed that the government paid for a larger portion of the nation's health care in 2007. Spending by federal, state and local governments made up 46.2% of total health care outlays, up from 45.3% in 2004 and 37.6% in 1970. Public spending on health care grew faster than spending by employers and other private sources in recent years, according to the report.

The increase in government health care outlays was partially caused by changes in Medicare, according to federal auditors. The Medicare prescription drug benefit cost $47.6 billion in 2007, up from $40.5 billion in 2006 (Wall Street Journal, 1/6). Administrative costs for Medicare increased by 62.5% when the prescription drug benefit was launched in 2006, and Medicare's administrative costs increased by 10.7% in 2007. Overall Medicare spending increased by 7.2% to $431.2 billion in 2007, compared with an increase of 18.5% in 2006. Medicaid spending in 2007 increased by 6.4% to $329.4 billion, the report found.

Private health insurance premiums increased by 6% to $775 billion in 2007, the same rate as in 2006, but less than the 10.7% increase in 2002. The slower growth rate reflects fewer small employers offering health coverage and increasing enrollment in health savings accounts and high-deductible health plans, according to the study. Out-of-pocket spending by patients increased by 5.3% in 2007 to $268.6 billion, compared with an increase of 3.3% in 2006, the study found. The portion of household income being spent on health care increased to 6% in 2007, up from 5.4% in 2001 (McClatchy/Miami Herald, 1/6).

Comments
CMS Chief Actuary Richard Foster said, "In 2007, the cost growth overall was the lowest in quite some time," adding, "True, we're happy about that, but it was still 6.1%. How much did GDP go up in that year? How much did any of your wages increase? The 6.1% was still faster than GDP, so we still have the affordability problem" (The Hill, 1/6). Foster said, "I wouldn't expect the good news to continue" (Reichard, CQ HealthBeat, 1/6).

CMS acting Administrator Kerry Weems said, "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." He added, "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" (McClatchy/Miami Herald, 1/6).

The report is available online.

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