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Slight Slowdown in 2005 Health Care Spending Driven by Drug Expenditures

Whether the slower growth will last remains to be seen
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© RICK FRIEDMAN/RICKFRIEDMAN/CORBIS
Health care spending grew at a slower pace in 2005 than it did the year before, continuing a three-year downward trend, according to government researchers. Weaker growth in prescription drug spending largely drove the overall decline. But hold the celebrations. Researchers cannot say whether the dip portends a longer-term slowdown.

And even if the growth holds steady, "it's still the fact that we're spending more and more of our dollar on healthcare," says health economist Gerard Anderson of Johns Hopkins University, who was not part of the new analysis. "That means we have less money to spend on other things."

The annual report by the Centers for Medicare and Medicaid Services finds that in 2005--the most recent year for which data is available--spending grew by 6.9 percent over the previous year. That marks a slight down-tick from the 7.2 percent growth in 2004 and is the smallest growth rate since 1999, when enrollment in more tightly controlled managed care plans began to decline. Total spending in 2005 rose to almost two trillion dollars, or $6,697 per person, which represents 15 percent of the gross domestic product.

The falling growth rate is consistent with slowdowns in medical spending that typically follow economic recessions like the one in 2001, say the authors of the report, published in this month's Health Affairs.

Drug expenditures led the decline, growing by 5.8 percent in 2005 compared with 8.6 percent in 2004 and a hefty 18.2 percent in 1999. The authors say the biggest reasons for the slide were greater use of generic drugs, less utilization of drugs in general and lower Medicaid prescription drug spending.

Although the percentage of personal income spent on health care rose 0.1 percentage point, to 6.0, private sector health expenditures actually pulled down overall growth because of weaker hikes in health insurance premiums, the researchers say.

Outlays on hospital, physicians and clinical services grew at similar rates to previous years. Hospital spending, which held at 7.9 percent growth, accounted for the largest share of growth in health expenditures. The growth in 2005 reflects greater use of hospital services and not higher prices, the report states.

The falling growth rate brings health spending trends more in line with the long-term pattern, which has held since the 1960s, Anderson says. "What you see is health care spending grows at about twice the rate of inflation," he says. (Inflation is 2 to 3 percent.)

Spending grew more rapidly in the late 1990s and early 2000s in part because people balked at the restrictions of managed care and insurers were, as a result, less able to negotiate lower prices from providers, experts say.

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