National Health Spending In 2007: Slower Drug Spending Contributes To Lowest Rate Of Overall Growth Since 1998

By Micah Hartman, Anne Martin, Patricia McDonnell, Aaron Catlin the National Health Expenditure Accounts Team – Centers for Medicare and Medicaid Services (CMS) Office of the Actuary
Health Affairs
January/February 2009

In 2007, U.S. health care spending growth slowed to its lowest rate since 1998, increasing 6.1 percent to $2.2 trillion, or $7,421 per person. The health care portion of gross domestic product reached 16.2 percent, up from 16.0 percent in 2006. Slower growth in 2007 was largely attributed to retail prescription drug spending and government administration. With the exception of prescription drugs, most other health care services grew at about the same rate as or faster than in 2006. Spending growth from private sources accelerated in 2007 as public spending slowed; however, public spending growth has continued to outpace private sources since 2002.

http://content.healthaffairs.org/cgi/content/abstract/28/1/246

This annual CMS report on health care spending is being celebrated in headlines throughout the nation as demonstrating a slowing in the growth of health care spending. Such headlines are missing the terrible news in this report.

• Most health care spending growth did not slow. The overall rate was lower partially due to decreases in drug costs, especially because many block-buster drugs came off of patent, and generic prescribing increased disproportionately. The increase in Medicare spending for 2006 was 18.5 percent, primarily because of the costs of the Part D drug benefit and the higher costs of the Medicare Advantage plans. Increases in Medicare spending for 2007 were still fairly high at 7.2 percent, but the decline from an extremely high percentage increase to a high percentage increase may be a decline in the rate of increase, but is still a very large increase. Next year’s report on the rate increases for 2008 likely will not reflect these downward distortions.

• Even with the downward adjustments, the overall rate of increase was still 6.1 percent, well in excess of the rate of inflation. A smaller increase over the rate of inflation cannot be interpreted as good news when the problem of increased costs is growing progressively worse.

• A very small but extremely important number in this report is that the percent increase in health care as a portion of our gross domestic product (GDP) was 0.2 percent, an increase from 16.0 percent to 16.2 percent. How can you celebrate a decline in the rate of increase in costs when those costs continue to encroach on our other spending?

Health care spending is in a crisis mode, and it only gets worse. Congress and the administration must act, but what do they intend to do? They are going to enact laws and regulations requiring us to give money to the private insurance industry to act as stewards of our health care dollars.

Yes, the insurers will be told to do a good job (through regulation), and when they fail (which they will), what will be their response? The same as now: Doctors and patients and hospitals and drug firms and tech firms keep running up the costs, and we can’t do anything about it.

Well, they’re right; they can’t. But the people can, by convincing Congress to enact our own single payer national health program – a program through which we can demand greater value in our health care purchasing.