Growth of U.S. Health Spending Slows

BALTIMORE–Due to a decline in the growth of prescription drug
expenditures, national health spending slowed in 2004, according to
a report released last week by CMS.

The report, issued annually by CMS’ Office of the Actuary, was
published in the journal Health Affairs. It shows the
nation’s health spending in 2004 increased 7.9 percent–the lowest
growth rate in four years–to $1.9 trillion, or $6,280 per person.
That compares to health spending increases of 8.2 percent in 2003
and 9.1 percent in 2002.

But the country’s health spending still grew faster than wages
and inflation and has reached its highest share yet of the gross
domestic product at 16 percent, compared to 13.8 percent in 1992
and 9.1 percent in 1980. Moreover, health care costs from 1993 to
2004–the most recent year for which actual numbers are
available–have doubled.

The report shows slower growth in prescription drug spending 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 health care 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.

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, the report showed. Private spending
growth slowed to 7.6 percent in 2004 compared with 8.6 percent in
2003.

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 Modernization Act, which 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 Medicare’s 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.