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Health care spending in the United States is projected to grow 7.8 percent in 2003, down from the 9.3 percent growth experienced in 2002, according to a report issued today by the Centers for Medicare & Medicaid Services (CMS).

A slowdown in health care spending growth in 2003 would follow six consecutive years of acceleration.

As a percentage of Gross Domestic Product (GDP), health care spending is expected to continue to grow, reaching 15.3 percent in 2003, up from 14.9 percent in 2002, according to the report prepared by the CMS Office of the Actuary and published on-line today by the journal Health Affairs.

The deceleration in the health care spending growth rate is mainly due to slower rates of growth anticipated for Medicaid and Medicare spending, private health insurance spending per enrollee, and medical price inflation. In particular, hospital and prescription drug spending are projected to experience slower growth than they have in recent years.

By 2013, health care spending in the United States is projected to reach $3.4 trillion and 18.4 percent of GDP. From 2002 to 2013, health care spending is projected to grow 7.3 percent per year on average.

The impacts of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA), which are not reflected in this set of projections, are anticipated to significantly affect the payers for prescription drugs beginning in 2006. Specifically, the shift of payments from Medicaid and private spending to Medicare as the benefit is implemented will likely change the projected trends for those payers; however, the impact of MMA is not expected to significantly alter the aggregate health spending projections contained in this article. The impacts of MMA will be assessed in a later report.

Per-enrollee private health insurance premium growth is expected to fall from 11.4 percent in 2002 to 10.4 percent in 2003, 8.0 percent in 2004, and 7.1 percent in 2005. The deceleration is due to both the projected continued slowdown in underlying medical costs per-enrollee and the anticipated turn in the underwriting cycle in 2004.

Out-of-pocket spending is expected to grow slightly faster in the near-term of the projection period than over the previous four years, as employers continue to shift health care costs to employees. Out-of-pocket spending growth is projected to reach 7.3 percent in 2005 from 6.0 percent in 2002. Despite this acceleration, out-of-pocket spending is still projected to fall as a share of private health spending because private health insurance premium growth is projected to be higher than out-of-pocket spending growth.

Medicare spending growth is projected to slow in 2003 due to the expiration of many of the provisions in the Medicare, Medicaid, and SCHIP Balance Budget Refinement Act of 1999 and the Medicare, Medicaid, and SCHIP Benefits an Improvement and Protection Act of 2000. Also, payments for inpatient hospital outlier cases are expected to be sharply curtailed. Medicare spending is expected to grow at only 5.2 percent in 2003, down from 8.4 percent in 2002 and 9.5 percent in 2001.

In 2003, Medicaid spending is expected to grow 7.5 percent, down from 10.2 percent in 2001 and 11.7 percent in 2002. The deceleration is due largely to states' decisions to limit Medicaid spending in light of their fiscal problems and a decrease in enrollment growth as the economy improved. Medicaid enrollment is projected to grow 3.9 percent in 2003, down from 5.9 percent in 2002.

Hospital spending growth appears to have peaked in 2002 at 9.5 percent. Hospital spending growth is projected to decelerate to 6.5 percent in 2003 and to 6.2 percent by 2005, as both price and utilization are anticipated to grow more slowly. The projected slowdown is even greater in the public sector, where hospital spending growth falls from 9.1 percent in 2002 to 4.4 percent in 2003. However, growth in hospital spending relative to total personal health care is expected to remain above its historical average from 1984 through 2000.

Prescription drug spending is still projected to be the fastest-growing sector, but growth is expected to continue its slowdown that began in 2000. Prescription drug spending growth is expected to be 13.4 percent in 2003, 12.9 percent in 2004, and 12.4 percent in 2005. The deceleration is due to slower growth in drug prices, the scheduled expiration of patent protection for several top-selling drugs, and increased use of multi-tiered copays that have slowed demand.

Physician and clinical services spending is expected to experience growth similar to total health spending, in line with its historical pattern. Growth in this sector is projected to be 6.8 percent in 2003, 6.6 percent in 2004, and 6.5 percent in 2005, down from 7.7 percent in 2002.

The health care spending projection data can be found on the CMS web site at http://www.cms.hhs.gov/statistics/nhe.