Healthcare spending growth stays low

May 1, 2001

Pharmaceutical Representative

Spending for all healthcare in the United States topped $1.2 trillion in 1999, up 5.6% from 1998, but continued a six-year trend of growth below 6%, according to a report by the Health Care Financing Administration. HCFA projections of future healthcare spending predict faster growth over the next decade, although not at the high rates of the 1980s and early 1990s.

Spending for all healthcare in the United States topped $1.2 trillion in 1999, up 5.6% from 1998, but continued a six-year trend of growth below 6%, according to a report by the Health Care Financing Administration. HCFA projections of future healthcare spending predict faster growth over the next decade, although not at the high rates of the 1980s and early 1990s.

Prescription drugs, accounting for 9.4% of personal health spending in 1999, continued to lead all other healthcare services in spending growth with increases of 16.9%. Prescription drug costs are expected to increase at an average rate of 12.6% between 1999 and 2010.

The HCFA report, published in the journal Health Affairs (vol. 20, no. 2), says that between 1993 and 1999, national health spending averaged increases of 0.5 percentage points less than the gross domestic product, as the shift to managed care and the impact on Medicare spending from the Balanced Budget Act of 1997 resulted in one-time savings. Coupled with faster real growth in the economy, this resulted in a slight decline in health spending's share of GDP, from 13.4% in 1993 to 13.0% in both 1998 and 1999.

Healthcare spending is projected to resume growth as a share of GDP in 2000, reaching 15.9% in 2010. The key factors behind this expected trend are recent strong household income growth, the projected slowdown in economic growth, continued advances in medical technology, and the inability of insurers to sustain the initial cost savings that resulted from the shift to managed care.

Medicare spending

Medicare spending growth is projected to accelerate as temporary Balanced Budget Act effects expire, recent legislation provides additional funds, and the transition to new payment systems is completed.

Currently, annual growth in Medicare spending remains low - only 0.1% in 1998, and 1.0% in 1999. This is well below the 9.2% average recorded for the period of 1993 to 1997. The two-year slowdown is attributed primarily to the effects of changing payment systems for home healthcare facilities and nursing homes, falling hospital case-mix, slower growth in general healthcare costs, and continuing federal government efforts to detect and reduce fraud and abuse.

Medicare spending represented 17.6% of every dollar spent on healthcare in 1999, falling from a peak of 19.3% of national health expenditures in 1996 and 1997.

Based on the law in effect at the time the projections were made, Medicare spending is expected to increase 6.3% in 2000, with growth averaging below 7% through the remainder of the decade.

Private spending for healthcare continued to grow more rapidly in 1999 than public spending. Private spending grew by 6.2%, and public spending increased by 4.9%. This trend is expected to continue over the next six years, in large part because of rapid increases in spending on prescription drugs, which are not generally covered by Medicare. PR

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