Friday, January 09, 2004

U.S. Health Spending Grew 9.3% in 2002 Over 2001, Marking Sixth-Straight Year of Increases, Study Says
[Jan 09, 2004]

      Driven by hospital and prescription drug costs, health care spending in the United States increased 9.3% to $1.55 trillion in 2002, the largest increase in 11 years and the fourth year in a row that the rate of increase surpassed growth in the rest of the economy, according to new data from CMS that is published in the current issue of Health Affairs, the New York Times reports (Pear, New York Times, 1/9). In 2001, health care spending increased 8.5% over 2000, the Washington Post reports (Brown, Washington Post, 1/9). Health care spending in 2002 accounted for 14.9% of gross domestic product, up from 14.1% in 2001 and 13.3% in 2000, according to the data (New York Times, 1/9). Overall health care spending in 2002 amounted to $5,440 per person, an increase of 8.3% from $5,021 per person in 2001, the Wall Street Journal reports (Schaefer Munoz, Wall Street Journal, 1/9). Hospital spending, up 9.5% from 2001, was the largest driver of the health spending increase in 2002, USA Today reports (Appleby, USA Today, 1/9). Hospital spending totaled $486.5 billion in 2002 and accounted for 32% of the overall health care spending increase, the data says (Wall Street Journal, 1/9). According to the report, the hospital spending increase was caused by increasing demand for hospital services, a rising number of admissions, length of hospital stays, medical malpractice insurance costs and hospital employees' wages and benefits (New York Times, 1/9). In addition, hospitals were better able to negotiate higher reimbursement rates with insurers because of mergers, the Journal reports.

Prescription Drug Spending
Prescription drug spending rose 15.3% to $162.4 billion in 2002, accounting for 16% of the overall health care spending increase (Wall Street Journal, 1/9). However, the pace of drug spending slowed in 2002. In 2001, drug spending increased 15.9%, compared with 16.4% and 19.7% increases in 2000 and 1999, respectively. Cynthia Smith, an economist for CMS, said that the increase in drug spending is because of people using newer, more expensive medications and not because of a price increase for existing drugs. She added that the rate of drug spending has slowed because of higher copayments, increased use of generic drugs and prior authorization policies (New York Times, 1/9). According to the data, further rapid growth in health care spending without strong economic growth "threatens the affordability and generosity of [employer-]sponsored health care benefits," USA Today reports (USA Today, 1/9).

Other Study Findings
The government also reported that total out-of-pocket spending by consumers rose 6% to $212.5 billion in 2002, the Boston Globe reports (Kowalczyk, Boston Globe, 1/9). The increase is in part because of a 14.4% increase in out-of-pocket drug spending to $48.6 billion, up from a 10.9% increase in 2001 (Wall Street Journal, 1/9). According to the data, further increases in consumers' out-of-pocket costs could slow the rate of growth in health care spending because "[a]s consumers share more of the increases in cost, the value of health services will be more closely weighed against other purchases" (Sherman, AP/Idaho Statesman, 1/9). Medicaid costs increased 11.7% to $249 billion in 2002 because of a weak labor market and a small increase in the number of older, disabled beneficiaries who require more expensive care, according to CMS (Wall Street Journal, 1/9). Further, the cost of Medicare increased 8.4% to $267 billion in 2002, the Hartford Courant reports. The increase is 2.5 percentage points less than the rate of private insurance cost growth, but researchers said that the difference is because Medicare does not currently have a prescription drug benefit (MacDonald, Hartford Courant, 1/9). Together, Medicaid and Medicare accounted for about 33% of overall health care spending in 2002, the Journal reports (Wall Street Journal, 1/9). In addition, enrollment in employer-sponsored health plans fell by about 1%, the second consecutive year of enrollment decline. USA Today reports that researchers said the decline is because of unemployment and a shift by workers to smaller companies, which are less likely to offer health benefits and require higher employee contributions (USA Today, 1/9).

Reaction
Uwe Reinhardt, a health economist at Princeton University, said, "The increase in health spending is no surprise whatsoever. This is what the American people asked for when they abolished managed care" (New York Times, 1/9). Drew Altman, president and CEO of the Kaiser Family Foundation, said, "Nobody has any idea what the new paradigm is going to be" to keep health care growth rates down (Washington Post, 1/9). Joseph Newhouse, a professor at the Harvard School of Public Health and Harvard Medical School, added, "The one thing we can say is the savings we had from managed care in the mid-1990s is a thing of the past." (Boston Globe, 1/9). However, Newhouse said, "There is a tendency to regard any increase in spending as bad, but to the degree that it buys services that we want to have and improves peoples' health, then it's a good thing" (Heldt Powell, Boston Herald, 1/9). Study coauthor Katharine Levit, director of the National Health Statistics Group at CMS, said, "This continued acceleration injects pressure into the health care system, and everyone -- from businesses, to government, to consumers -- is affected" (Wall Street Journal, 1/9). However, she added that factors that drive the growth of health care spending show "signs of dissipating in 2003" because it generally takes two or three years for changes in the economy, such as the 2001 recession, to affect the health care sector (New York Times, 1/9).

An abstract of the health cost report published in Health Affairs are available online. An abstract of a second report on prescription drug spending also is available online.
A HealthCast of a briefing to discuss the data is available online at kaisernetwork.org.

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