January 08, 2008
Health Care Spending Growth Slows
Health care spending grew at a pace only slightly higher than the overall economy in 2006, the second straight year of moderate growth, according to the latest data from the Center for Medicare and Medicaid Services.
The nominal growth (actual dollars) was 6.7 percent, slightly higher than 6.5 percent in 2005. If you subtract out inflation, you get real growth of about 3.5 percent, which is only a half percentage point higher than overall economic growth in 2006.
However, everything isn't rosy. We now spend over $7,000 per person on health, and it absorbs 16 percent of gross domestic product. Prescription drug spending continues to soar, although the 8.5 percent increase in retail drug spending is much less than the 13.4 percent average annual growth between 1995 and 2004.
A large part of that was due to Medicare increases in prescription drug costs. Fully 74 percent of the 13.8 increase in fee-for-service medicine in Medicare came from increased spending on prescription drugs after the benefit became fully operational. If one discounts that huge jump in spending, Medicare spending actually rose just 6.0 percent, the same percentage as private insurance costs.
State taxpayers were among biggest beneficiaries of the jump in Medicare drug spending as Medicaid outlays declined 1.3 percent last year. Poor seniors now have their drug bills picked up by Medicare instead of Medicaid.
Overall, the drug benefit costs caused public sector spending to grow at a faster rate than private sector spending -- 8 percent versus 5.4 percent. While utilization rates were higher (insured seniors are much more likely to fill prescriptions than uninsured ones), generic drugs garnered a larger share of the market -- 65 percent of prescriptions in 2006, up from 56 percent in 2005.
The report said drug prices were relatively tame -- up just 3.5 percent on average. But it's clear that the failure to give Medicare the right to negotiate drug prices is having a major impact on spending. As noted above, drug spending on Medicaid, where the law mandates that drug companies provide the lowest available price, got transferred to Medicare, where the sky is the limit.
As I've noted many times in the past, only through the alchemy of Washington politics can a benefit for seniors be transformed into a price support program for industry.
An accompanying perspective by Paul Ginsburg, president of the Center for Studying Health System Change, warns that the good news may be temporary. Health care costs are poised to resume their rapid growth because of a "medical arms race," he claims. Hospitals are adding beds by expanding imaging facilities and operating rooms; entrepreneurial physicians are coping with declining fee-for-service payments by opening clinics for imaging, endoscopies and cardiac tests; and self-referrals by these physicians are on the rise.
"With the loosening of managed care restrictions, the medical arms race has resurfaced," he writes. "Whether supply is inducing or responding to demand, building booms lead to more spending on health services."
Posted by gooznews at January 8, 2008 08:32 AM