U.S. health spending hit $1.7 trillion in 2003

Government officials vow to do more this year to rein in expenditures on care.

By Joel B. Finkelstein — Posted Jan. 24, 2005

Print  |   Email  |   Respond  |   Reprints  |   Like Facebook  |   Share Twitter  |   Tweet Linkedin

Washington -- The increase in U.S. health spending slowed somewhat in 2003, but it is still too early to tell whether the change reflects a trend.

The rate marked the first deceleration in national health spending growth in seven years, said Cynthia Smith, an economist with the Centers for Medicare & Medicaid Services and lead author of a report on the subject published in the January/February issue of Health Affairs.

U.S. health expenditures rose by 7.7% in 2003 to nearly $1.7 trillion, and for the first time exceeds 15% of the gross domestic product. Health spending grew by 9.3% in 2002.

"This is good news for the public and our health care system and is the result of changes designed to slow down the growth in spending," said Health and Human Services Secretary Tommy G. Thompson. "But we have more to do before we can declare victory over rising health care costs."

Much of the slowdown can be tied to cuts in public health spending, which reduced growth in that area to 6.3% in 2003. Many of those were one-time cuts, making it unpredictable whether the slide will be sustained, Smith said.

"The administration and the Congress have taken important steps in recent years to contain costs in our major health care programs, while improving the quality of care that patients receive," said CMS Administrator Mark B. McClellan, MD, PhD. "And as we implement the new Medicare law, we intend to do even more in the year ahead."

While Medicare spending growth slowed, its spending on physicians grew by 6.9% -- a somewhat faster rate than 2002 -- because of slightly higher Medicare payments in 2003.

Overall expenditures on physician services grew by 8.5%, compared with 8.2% in 2002. Private spending accounted for two-thirds of that and increased by 9.4%. The growth of public spending on physician services slowed to 6.7%, mainly due to Medicaid cuts.

Reductions in Medicaid contributed significantly to the slowdown in public spending on care. They resulted in reduced benefits and eligibility for many patients, the report's authors said.

There was also a deceleration in private health spending growth. It was caused in part by a percentage point drop in employer-sponsored coverage, largely due to rising insurance premiums, the authors said.

"It is disturbing that private health insurance premiums continue to grow at a faster rate than health insurance benefit outlays," said Karen Davis, president of the Commonwealth Fund. Premiums rose 9.3% in 2003, compared with benefit outlay increases of 8.2%.

"One consequence is that the net cost of private insurance and program administration is the fastest growing component of total health expenditures at 13.2%," she said.

Spending on prescription drugs also slowed in 2003, in part due to a greater availability of generics. Blockbuster drug Claritin moved from being a prescription-only product to an over-the-counter remedy. Prescription drugs are counted in the spending report, but OTC medications are not.

Meanwhile, as employers have shifted more of their health spending to workers, out-of-pocket costs were one of the few spending measures that experienced accelerated growth in 2003, according to the report.

"Increasing patient cost-sharing and piecemeal approaches to containing health care costs are unlikely to be effective over the longer term in controlling costs or enhancing value," Davis said.

Back to top


Where does the money go?

In 2003, health care costs averaged $5,670 per person in the United States, adding up to a total of nearly $1.7 trillion spent on health care, including:

$515.9 billion on hospital care.

$369.7 billion on physician and clinical services.

$150.8 billion on nursing and home health care.

$179.2 billion on prescription drugs.

$20.4 billion on durable medical equipment.

Note: Prescription drug total oes not include prescription drugs purchased from outside the country.

Source: Centers for Medicare & Medicaid Services Office of the Actuary, National Health Statistics Group, January

Back to top



Read story

Confronting bias against obese patients

Medical educators are starting to raise awareness about how weight-related stigma can impair patient-physician communication and the treatment of obesity. Read story

Read story


American Medical News is ceasing publication after 55 years of serving physicians by keeping them informed of their rapidly changing profession. Read story

Read story

Policing medical practice employees after work

Doctors can try to regulate staff actions outside the office, but they must watch what they try to stamp out and how they do it. Read story

Read story

Diabetes prevention: Set on a course for lifestyle change

The YMCA's evidence-based program is helping prediabetic patients eat right, get active and lose weight. Read story

Read story

Medicaid's muddled preventive care picture

The health system reform law promises no-cost coverage of a lengthy list of screenings and other prevention services, but some beneficiaries still might miss out. Read story

Read story

How to get tax breaks for your medical practice

Federal, state and local governments offer doctors incentives because practices are recognized as economic engines. But physicians must know how and where to find them. Read story

Read story

Advance pay ACOs: A down payment on Medicare's future

Accountable care organizations that pay doctors up-front bring practice improvements, but it's unclear yet if program actuaries will see a return on investment. Read story

Read story

Physician liability: Your team, your legal risk

When health care team members drop the ball, it's often doctors who end up in court. How can physicians improve such care and avoid risks? Read story

  • Stay informed
  • Twitter
  • Facebook
  • RSS
  • LinkedIn