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Healthcare spending rises 6.7%

Drug purchases up as Medicare plan eases access

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Associated Press / January 8, 2008

WASHINGTON - Seniors and the disabled flocked to the pharmacy counter in 2006 with their new Medicare drug cards, fueling a 6.7 percent increase in health spending, the federal government reported yesterday.

In most other areas of healthcare, there was a welcome slowdown in spending. It still cost more to go to the hospital or doctor, but the increase was not as great as in the previous year.

The $2.1 trillion spent on healthcare in 2006 came to an average of $7,026 a person. Healthcare represents 16.1 percent of the economy. The increase in drug spending occurred even as consumers relied more on generic drugs and as prices remained relatively stable for many brand names. Nearly two out of every three prescriptions filled were generics, which helped restrain drug expenditures.

But that restraint was offset by the new Medicare benefit. Those with insurance are more likely to access the healthcare system. Under the drug benefit, people who once had to forgo or cut back on medicine had the means to fill more prescriptions in 2006, thanks to the new government subsidy.

Also, under the drug benefit, many of the poorest beneficiaries were moved from Medicaid into Medicare, where private plans administer the drug benefit. Those private plans failed to negotiate discounts as large as those that the states got. Officials said the discounts drug manufacturers were required to give states typically lowered costs about 30 percent. Meanwhile, the private plans typically negotiated discounts of 5 to 10 percent. Spending on prescription drugs increased 8.5 percent in the drug benefit's first year - compared to 5.8 percent the year before.

Overall, healthcare makes up a growing share of the nation's economy - a trend that many analysts worry will eventually harm the economy as businesses, the government, and consumers have to divert resources from other priorities to pay health bills.

"Costs continue to grow faster than income, and there's no reason to believe this won't continue," said Paul Ginsburg, president of the Center for Studying Health System Change, a research organization.

Ginsburg said the government and private sector is not helpless when it comes to lowering health bills. Medicare and the private sector can put more emphasis on encouraging healthy lifestyles and reducing obesity rates, he said. They can also focus their payments so that there is not such a huge incentive for doctors to order extra tests, imaging scans, and various other procedures.

The report by economists from the Centers for Medicare and Medicaid Services, published in the journal Health Affairs, showed that spending on:

Home healthcare rose 9.9 percent in 2006. In each of the previous two years, home health spending increased 12.3 percent.

Nursing home care rose 3.5 percent.

Wheelchairs, walkers, artificial limbs, and other such medical equipment rose 2.3 percent.

Spending on hospitals and physician services accounts for about half of each dollar spent on healthcare in the United States. Spending for both slowed slightly in 2006. Spending rose 7 percent for hospital care - versus 7.3 percent the year before. Spending for physician services rose 5.9 percent - versus 7.4 percent the year before.

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