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

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.