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Febuary 3, 2004

Health Care Spending Soars

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AP) Health care spending in the United States surged to $1.6 trillion in 2002 — about $5,440 for every American — and outpaced growth in the rest of the economy for a fourth straight year.

Hospital spending and prescription drug costs fueled the 9.3 percent increase over 2001, the federal Centers for Medicare and Medicaid Services said Thursday.

"This continued acceleration injects pressure into the health care system, and everyone — from businesses, to government, to consumers — is affected," Katharine Levit, a CMS official and the lead author of the report, said at a news conference.

Early indications, however, are that growth in spending slowed in 2003, according to the report, published in the journal Health Affairs.

"We are expecting some slowdown to occur ... as a result of the economic slowdown," Levit said.

The annual report analyzes spending trends in the public and private health care sectors.

The United States spends more per person than any other developed nation, according to the Organization for Economic Cooperation and Development. For 2001, this country spent 47 percent more per person than Switzerland, the second biggest spender per capita, the OECD said.

Sen. Edward M. Kennedy, D-Mass., said the report was evidence of "the need for prompt action in controlling the costs of health care." He faulted the Bush administration for failing to act. The Health and Human Services Department, which oversees CMS, did not immediately provide a response.

Prescription drug spending remained the fastest-growing item in health care, although the rate of growth slowed slightly to 15.3 percent. Drug costs are expected to outstrip the overall growth in health care spending for the next 10 years, and that projection does not take into account the new Medicare prescription drug benefit that begins in 2006. Many economists believe the change will lead to an additional increase in costs.

In 2002, out-of-pocket spending for prescription drugs increased because of changes in drug insurance coverage that shifted costs to consumers.

Hospital spending rose 9.5 percent, reflecting increasing use of hospital services, rising wages of hospital workers and hospitals' growing ability to negotiate prices with private insurance plans, the report said.

The resurgence in hospital spending growth follows the expansion of managed care insurance plans in the mid-1990s that clamped restrictions on hospital stays.

Out-of-pocket spending actually continued its long decline as a percentage of overall spending — from 21 percent in 1988 to 13.7 percent in 2002 — mainly a result of the expansion of covered services in insurance plans.

The recession, however, increased financial pressures on private employers and governments alike. The common response was to shift costs to employees and beneficiaries.

In particular, states already are imposing limits on the Medicaid program for the poor in an effort to restrain costs.

Similar shifts in the future could slow the rate of growth in health care spending, the report said. "As consumers share more of the increases in cost, the value of health services will be more closely weighed against other purchases, underscoring the considerable value of some services and the discretionary nature of others," they wrote.

Private insurance accounted for $549.6 billion, or 35 percent of the total. Out-of-pocket spending and other private sources, including philanthropy, made up 19 percent, or $290 billion.

Public funds paid $713.4 billion, led by the Medicare and Medicaid programs.

The biggest factor in Medicaid growth was a small increase in older and disabled recipients, who account for a disproportionate share of spending.

The report said spending in Medicare has grown more slowly than in private insurance, but noted the difficulty of comparing the relatively static Medicare program with private insurance plans "that have responded to consumers' demands for more costly, less tightly managed plans."

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