U.S. healthcare spending declines

Sunday, January 15, 2006

BALTIMORE - The growth in healthcare spending in the United States slowed for the second straight year in 2004, according to a report released by CMS last week. Spending in 2004 rose 7.9%--slower than the 8.2% growth in 2003 and 9.1% growth in 2002.

The report, issued annually by CMS's Office of the Actuary, was published in the journal Health Affairs. It shows that healthcare spending was $1.9 trillion in 2004, or $6,280 per person. It includes data through 2004, the most recent year for which actual numbers are available.

The share of the nation's Gross Domestic Product (GDP) spent on health care grew 0.1% point to 16% in 2004. This was a smaller increase in the share of GDP than experienced in recent years as economic growth in 2004 grew at its fastest rate since 1989.

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% of the growth in national healthcare expenditures, smaller than its share of the increase in recent years. In addition, the rate of growth in prescription drug spending--at 8.2% in 2004--is slower in absolute terms than in previous years.

Prescription drug spending had accounted for 23% of the growth in personal health spending between 1997 and 2000, but by 2002-2004 it accounted for only 14%.

On the other hand, hospital spending accounted for 28% of the growth in personal health spending between 1997 and 2000 and increased to 38% by 2002-2004. Spending for physician services accounted for 29% of the total growth in personal health spending in 2004, up from an average 25% share in the 2000-2002 period.

In 2004, private payers played a greater role in slowing spending than public payers. Private spending growth slowed to 7.6% in 2004 compared with 8.6% in 2003.

Out-of-pocket payments grew 5.5% in 2004, slower than aggregate health spending growth and slower than private insurance premiums, both in aggregate and on a per-enrollee basis.

Per-enrollee private health insurance premium growth in 2004 was 8.4%, while in 2002 it was 11.5% and in 2003, 10.4%.

Federal, state and local government spending for health care rose 8.2% 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 (MMA), 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% point rise in Medicare spending growth to 8.9% in 2004.