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New Prescription Drug Benefit Fuels Fastest Growth In Medicare Spending In 25 Years, Say Federal Experts In Health Affairs Article

 Medicare Drug Benefit Leads To First-Ever Decrease In Medicaid Spending

Other Studies In January/February Issue Examine Growing Role Of Public Coverage, Rising Out-Of-Pocket Health Care Expenses

Bethesda, MD -- Full implementation of the new Medicare prescription drug benefit contributed to an 18.7 percent increase in Medicare spending in 2006, the fastest rate of growth since 1981 and double the rise in 2005, the federal government reported today. In 2006, Medicare spending rose to $401.3 billion, up from $338.0 billion a year earlier, says the government’s annual health spending report appearing in the January-February 2008 issue of the journal Health Affairs. http://content.healthaffairs.org/cgi/content/abstract/27/1/14

Meanwhile, Medicaid spending fell slightly for the first time since its inception in 1965, to $310.6 billion in 2006 from $313.5 billion in 2005. The 0.9 percent drop was largely attributable to the transfer of drug coverage for people who are dually eligible for Medicare and Medicaid coverage, say analysts from the Centers for Medicare and Medicaid Services (CMS).

The report, by economists from the National Health Statistics Group in the CMS Office of the Actuary, examines national health spending trends in the public and private sectors. The annual report provides the most current and comprehensive data on the health care sector.

Despite the growth in Medicare spending, overall health care spending in the United States grew 6.7 percent in 2006 to $2.1 trillion, or $7,026 per person -- a slight acceleration over the 6.5 percent rate in 2005, which marked the slowest growth since 1999. Health spending accounted for 16 percent of gross domestic product (GDP) in 2006, outpacing overall nominal GDP growth by 0.6 percentage point.

After a six-year slowdown, retail U.S. prescription drug spending rose 8.5 percent in 2006, compared to 5.8 percent in 2005. Still, the 2006 growth rate was well below the average annual rate of 13.4 percent between 1995 and 2004.

“Implementation of the Medicare Part D drug benefit shifted the funding of retail drug purchases and impacted the rate of overall drug spending growth,” said lead author Aaron Catlin, an economist with the CMS.

The impact on the sources of funding that paid for prescription drugs varied. The public share of drug spending increased from 28 percent in 2005 to 34 percent in 2006, while the private share fell from 72 percent to 66 percent. The shift in funding was most dramatic for Medicare and Medicaid. Medicare’s share of total retail prescription drug spending surged from just 2 percent in 2005 to 18 percent in 2006, following Part D implementation. Meanwhile, Medicaid’s share fell from 19 percent to 9 percent.

Most other major health services and public payers experienced slower spending growth in 2006. Personal health care spending grew 6.6 percent in 2006, compared to 6.8 percent in 2005. Health care price growth accounted for more than half of the growth in 2006.

Ginsburg: Health Care Spending Slowdown Unlikely To Last

Writing in this issue, Paul Ginsburg, president of the Center for Studying Health System Change, predicts that the continued slowing of health care spending is unlikely to last. He cites a push toward rapid expansion of provider capacity and incentives to increase the volume of care in local markets as factors that will lead to more spending on health services. Other factors behind rising costs include obesity and the delayed influence of the economy on health spending. “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 writes. http://content.healthaffairs.org/cgi/content/abstract/27/1/30

Other Issue Highlights:

January/February 2008 Health Affairs Table of Contents

Health Spending Burden On Families Increases. From 2001 to 2004, rising out-of-pocket expenses and stagnant incomes increased the financial burden on families to pay for health care, especially for the privately insured, says a new study. The percentage of the nonelderly population living in families with high out-of-pocket health care burdens rose from 15.9 percent to 17.7 percent. By 2004, 45.4 million people lived in families with high financial burdens for health care, an increase of almost 6 million from 2001, say economists Jessica Banthin and Didem Bernardfrom the Agency for Healthcare Research and Quality (AHRQ) and Peter Cunningham ofthe Center for Studying Health System Change. The study was cosponsored by the Commonwealth Fund. http://content.healthaffairs.org/cgi/content/abstract/27/1/188

Increases in out-of-pocket spending between 2001 and 2004 were driven by increases in health insurance premium payments and spending on health care. The increase in families’ financial burden for health care was driven entirely by people with employer-sponsored coverage. Out-of-pocket spending for premiums and services increased by $553 to $3,211 between 2001 and 2004. “Private health insurance, as currently structured, does not completely protect many poor and low-income individuals and families from the high cost of health care,” the researchers write. Subsidizing out-of-pocket premiums for low- and moderate-income workers who have access to employer-sponsored coverage is one way to make private coverage more affordable, they say.

Growing Number Of Families Rely On Public Coverage. As private health insurance has eroded, public health coverage has played an increasingly important role for working families with children, says a new AHRQ study. Among single-parent families with employer-based insurance, the proportion with at least one family member with public coverage almost doubled over the 1997-2005 period, from 17.9 percent to 35.1 percent, the study says. By 2005, almost half of minority single-parent families with access to job-based coverage had at least one family member with public coverage. http://content.healthaffairs.org/cgi/content/abstract/27/1/44

Two-parent families also experienced a doubling of the rate of public coverage, with the rate for Hispanics quadrupling to almost 36 percent. The proportion of single-parent families who had access to job-based insurance and were covered by only private coverage declined from 67 percent to 54 percent, and from 85 percent to 80 percent for married couples with children. Researchers Jessica Vistnes and Barbara Schone hypothesize that the rise in cost of employee contributions and the expansion of public coverage options, such as the State Children’s Health Insurance Program (SCHIP), resulted in a shift in sources of insurance coverage for families. “It is clear that families are becoming less likely to have all members covered by a single insurance plan,” the researchers write. They call for a more detailed analysis to uncover what is driving changes in the sources of insurance coverage.

U.S. Deaths From Treatable Illnesses Surpass Other Nations. Another study from London School of Hygiene and Tropical Medicine researchers shows that Americans are more likely than citizens of eighteen other industrialized countries to suffer deaths that could have  been prevented by timely and effective health care. The study compared the rate of deaths from treatable conditions before age seventy-five between 1997–1998 and 2002–2003. It found that the decline in deaths averaged 16 percent for the eighteen countries. However, the United States experienced a 4 percent decline. Although authors Ellen Nolte and Martin McKee say several factors might have led to these differences, they write that the “comparatively poor performance of the U.S. health care system” is a factor. http://content.healthaffairs.org/cgi/content/abstract/27/1/58

 

ABOUT HEALTH AFFAIRS:

Health Affairs, published by Project HOPE, is the leading journal of health policy. The peer-reviewed journal appears bimonthly in print with additional online-only papers published weekly as Health Affairs Web Exclusives at www.healthaffairs.org.

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©2008 Project HOPE–The People-to-People Health Foundation, Inc.