Spending increased in 2004

Healthcare spending continued to climb upward in 2004, to its highest proportion ever of the nation's gross domestic product.

BY TONY PUGH

tpugh@krwashington.com

WASHINGTON - U.S. healthcare spending increased 7.9 percent to nearly $1.9 trillion in 2004, once again outpacing wage growth and inflation on its way to chewing up a record 16 percent of the nation's gross domestic product, according to a new federal report.

Spending for hospital and physician services accounted for 62 percent of the spending increase, which was driven mainly by new medical treatments, rising prices and the growing use of medical services, the federal Centers for Medicare and Medicaid Services reported Monday.

Home health services for the elderly and people with disabilities, while only a small portion of overall spending, rose faster than any other category, jumping 13.3 percent in 2004.

Retail prescription-drug spending, while still accounting for about 12 percent of all healthcare expenditures, grew at its slowest annual rate in a decade.

''Medical spending continues to rise faster than wages and faster than economic growth, and workers are paying much more in healthcare premiums than just a few years ago,'' the report concluded.

That means more people, particularly low-income workers, can't afford health insurance for themselves and their families.

''It's starting to affect middle-income people as well,'' said Paul Ginsburg, the president of The Center for Studying Health System Change, a nonpartisan health-research group in Washington.

Health and Human Services Secretary Mike Leavitt said the problem affected all segments of society.

''We must build on steps already taken -- the new Medicare prescription-drug benefit, advancing health-information technology and encouraging a prevention-oriented society -- to find innovative, market-based ways to control costs,'' according to Leavitt.

Total healthcare spending by consumers, business and government reached $6,280 per person in 2004, up from $5,670 per person in 2003.

Consumers spent $557 billion for healthcare in 2004. While out-of-pocket spending grew by 5.5 percent in 2004, it decreased as a share of total health spending for the sixth straight year, the report found.

Hospital costs, which jumped 8.6 percent in 2004 to $571 billion, accounted for one-third of all U.S. health-spending growth.

Physician costs increased 9 percent to nearly $400 billion and made up 29 percent of total growth, the report found.

Prescription-drug spending grew by 8.2 percent in 2004, down from 10.2 percent in 2003 and 14 percent in 2002. The decline stems mostly from increased use of generic drugs, mainly through tiered benefit plans and more restrictive formularies in employer-sponsored health plans.

Greater use of over-the-counter antihistamines and ulcer medications and wider use of lower-cost mail-order prescriptions also helped curb drug spending, the report found. Safety concerns about certain medications, such as Cox-2 inhibitors, slowed usage too.

The slowdown in drug-spending growth probably is a short-term phenomenon because of a series of important demographic changes on the horizon, said Dr. Kenneth Thorpe, the chair of the health policy-management department at Emory University in Atlanta.

The aging of more than 70 million baby-boomers born before 1964 and the nation's growing rate of obesity, diabetes, arthritis and mental health problems will cause drug usage to grow steadily in coming years, according to Thorpe.

In addition, the report found:

• Employers' share of health insurance premiums dropped from 74.3 percent in 2003 to 73 percent in 2004, continuing a trend of passing more healthcare costs to employees.

• Private insurance premiums totaled $658.5 billion in 2004, outpacing the $563.5 billion paid in benefits by 17 percent.

• Public healthcare spending -- driven mainly by Medicare, the public health plan for the elderly and people with disabilities -- jumped 8.2 percent and made up 47 percent of total U.S. health spending.

• Medicare spending grew 8.9 percent to $309 billion in 2004.

• Medicaid spending grew 7.9 percent to $293 billion in 2004.