January 2008
In this issue
2006 U.S. Healthcare Spending Totals $2.1 Trillion

A report from the Centers for Medicare & Medicaid Services' (CMS) Office of the Actuary provided a balanced assessment earlier this month of U.S. healthcare spending, attempting to keep the $2.1 trillion total in context. The report, published in the January-February issue of health policy journal Health Affairs, calls the 6.7 percent increase in 2006 healthcare spending "a slight acceleration" from the 6.5 percent rate of 2005. This was the slowest rate of growth the nation has seen since 1999, and when given as a 16 percent proportion of the Gross Domestic Product (GDP), reflects only a 0.1 percentage point increase from 2005.

Still, healthcare spending in 2006 exceeded the rates of overall economic growth (6.1 percent), inflation (3.2 percent), and nominal GDP growth by 0.6 of a percentage point. According to the report, out-of-pocket spending grew 3.8 percent in 2006, accounting for 12 percent of national health spending, slowing down from the 5.2 percent rate of growth in 2005. CMS says in the report however, that relative to overall household spending since 2003, out-of-pocket healthcare spending has remained fairly flat, and while overall personal healthcare spending by major health services and public payers grew 6.6 percent in 2006, the rate of increase slowed from 6.8 percent in 2005.

While slowing increases in the rate of personal healthcare spending indicate an encouraging trend, they are unlikely to last. This is the opinion of Paul Ginsburg, Ph.D., and president of the Center for Studying Health System Change, who contributed to the same issue of Health Affairs. "It would be a stretch to conclude that the corner has been turned in dealing with the long-term gap between growth in health spending and growth in income and the resulting financial pressures," Ginsburg wrote.

The introduction of Medicare Part D is partially responsible for this decrease in personal spending, which now provides coverage for prescription drugs. However, after a 6-year decline, retail prescription drug spending in the U.S. rose 8.5 percent in 2006, totaling $216.7 billion, up from 5.8 percent ($199.7 billion total) in 2005. Although Medicare's share of total retail prescription drug spending (under Part D) in 2006 increased dramatically to 18 percent, up sharply from 2 percent in 2005, Medicaid's share, on the other hand, fell from 19 percent to 9 percent.

A lead author of the government's annual health spending report and economist for the National Health Statistics Group from CMS, Aaron Catlin, was quoted in the issue of Health Affairs as saying, "implementation of the Medicare Part D drug benefit shifted the funding of retail drug purchases and impacted the rate of overall drug spending growth." Total Medicare spending increased 18.7 percent in 2006, following a 9.3 percent decline the previous year. Ginsburg, in the CMS healthcare spending assessment from last year also wrote, "a portion of the slowing trends over the past few years may in fact be the lagged impact of the 2001 recession, indicating that the impact of recent years of economic recovery and rapid growth on health spending trends is likely to be ahead of us." Ginsburg cites an impending increase in rapid expansion of provider capacity and incentives to increase the volume of care as factors that will result in increased healthcare spending. Additional contributors toward increases in healthcare costs Ginsburg says include the obesity epidemic and the delayed influence of the economy on healthcare spending.

CMS officials, commenting on the report's findings, called the cost of healthcare "a real and pressing concern." Kerry Weems, acting CMS administrator, said in a CMS press release, "this review of healthcare spending reminds us that we need to accelerate our efforts to improve our healthcare delivery system to make sure that Medicare and Medicaid are sustainable for future generations of beneficiaries and taxpayers." Click here to read more about the 2006 CMS report on healthcare spending.

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