Medicare News
| For Immediate Release: | Contact: |
| Monday, March 12, 2001 | CMS Office of Public Affairs 202-690-6145 |
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HEALTH CARE SPENDING GROWTH RATE STAYS LOW IN 1999
Spending for all health care in the United States topped $1.2 trillion in 1999, up 5.6 percent from 1998, but continued a six-year trend of growth below 6 percent, according to a report by the Health Care Financing Administration (HCFA), the federal agency that runs Medicare and Medicaid.
HCFA projections of future health care 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 percent of personal health spending in 1999, continued to lead all other health care services in spending growth with increases of 16.9 percent. Prescription drug costs are expected to increase at an average rate of 12.6 percent between 1999 and 2010.
The HCFA report, published today in the journal Health Affairs, says that between 1993 and 1999 health spending nationally averaged increases of 0.5 percentage points less than the gross domestic product (GDP) as the shift to managed care and impacts on Medicare spending from the Balanced Budget Act (BBA) 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 percent in 1993 to 13.0 percent in both 1998 and 1999.
Health care spending is projected to resume growing as a share of GDP in 2000, reaching 15.9 percent 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 growth is projected to accelerate as temporary BBA 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 percent in 1998, and 1.0 percent in 1999. This is well below the average recorded for the 1993-1997 period of 9.2 percent. The two-year slowdown is attributed primarily to the effects of changing payment systems for home health care facilities and nursing homes, falling hospital case-mix, slower growth in general health care costs, and continuing federal government efforts to detect and reduce fraud and abuse.
Medicare spending represented 17.6 percent of every dollar spent on health care in 1999, falling from a peak of 19.3 percent of national health expenditures in 1996-1997.
Based on the law in effect at the time the projections were made, Medicare spending is expected to increase 6.3 percent in 2000, with growth averaging below 7 percent through the remainder of the decade.
The Medicaid share of total health spending, without SCHIP funding, is projected to continue to rise, from 15.4 percent in 1999, to 16.8 percent in 2010.
Private spending for health care continued to grow more rapidly in 1999 than public spending. Private spending grew by 6.2 percent and public spending by 4.9 percent. The relatively higher growth in private spending is expected to continue over the next six years, in large part because of rapid spending growth on prescription drugs, which are generally not covered by Medicare.
Growth in spending for prescription drugs continued to outpace spending growth for other health services in 1999, as a steady shift toward health insurance plans with small out-of-pocket requirements for drugs has raised consumer demand. An increase in the number of prescriptions filled, a larger number of new, high-priced drugs in the marketplace, higher prices for existing drugs, and an increase in direct-to-consumer advertising expenditures, also contributed to the higher spending growth rate for drugs.
Drug spending is projected to increase by 12.6 percent per year on average over the next decade, ultimately reaching 16.0 percent of personal health spending in 2010, compared to 9.4 percent in 1999.
Full information on the HCFA national health expenditures reports was published today in the March/April 2001 issue of Health Affairs, a publication of Project Hope. The article is available free on the journal's Web site, www.healthaffairs.org.
