US Health Care Spending Increased In 2006

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US Health Care Spending

U.S. health care spending in 2006 increased by 6.7% to $2.1trillion, or $7,026 per capita, according to a CMSreport published on Tuesday in the journal Health Affairs,the Washington Postreports (Lee, Washington Post, 1/8). According to thereport, health care spending in 2006 accounted for 16% of grossdomestic product, an increase of 0.1% from 2005 (Reichard, CQHealthBeat, 1/8).

Prescription drug spending in2006 increased to $216.7 billion, an 8.5% increase from 2005, thereport found. Public programs -- such as Medicare, Medicaid, thoseoperated by the Departmentof Defense and the Departmentof Veterans Affairs, and state and local hospital subsidies --accounted for 34% of prescription drug spending, compared with 28% in2005, before the Medicare prescription drug benefit took effect, thereport found. The increase in prescription drug spending in largepart resulted from the use of more medications, not higher prices,according to the report (Washington Post,1/8).

Medicare beneficiaries who previously purchasedmedications out of pocket at list prices in 2006 began to receivecoverage under the prescription drug benefit, and, as a result, theyused more treatments, the report found (Alonso-Zaldivar, LosAngeles Times, 1/8). "Implementation of the Medicaredrug benefit shifted the funding of retail drug purchases andimpacted the rate of overall drug spending growth," AaronCatlin, lead author of the report and an economist at HHS,said (Lopes, WashingtonTimes, 1/8). Private Medicare prescription drug plans alsoreceived lower discounts on medications than state Medicaid programs,which previously provided coverage to dually eligible beneficiaries,the report found.

The report also cited the use ofmedications for new purposes and the increased use of biotechnologytreatments (Pear, New YorkTimes, 1/8). In addition, the report cited increased useof insomnia medications -- such as Ambien CR, manufactured bySanofi-Aventis, andLunesta, manufactured by Sepracor(Zhang, Wall Street Journal, 1/8).

The reportfound that prescription drug spending would have increased morewithout the use of more generic medications and the launch ofprograms that provide discounts on such treatments by Wal-Martand other retail stores. Generic medications in 2006 accounted for63% of prescriptions, compared with 56% in 2005, according to thereport (New York Times, 1/8).


Medicare spending in 2006 increased to $401.3 billion from $338billion in 2005, and the prescription drug benefit accounted for $41billion in Medicare spending in 2006, the report found (WashingtonPost, 1/8). In 2006, Medicare accounted for 18% of retailprescription drug spending, compared with 2% in 2005 (LosAngeles Times, 1/8).

CMS Chief Actuary Richard Fostersaid, "The source of payment for prescription drugs has changeda lot" because of the Medicare prescription drug benefit,adding, "Those are big changes. But the overall cost ofprescription drugs in the U.S. has changed very little as a resultof" the benefit. In addition, Foster said that Medicare spendingon the prescription drug benefit remains lower than previouslyestimated (Washington Post, 1/8). According to the LosAngeles Times, the report "did not provide a finalverdict on whether the Medicare prescription benefit is a good dealfor taxpayers" (Los Angeles Times, 1/8).

Medicarespending on managed care plans in 2006 increased by 48%, in largepart because of a 25% increase in enrollment and higherreimbursements for health insurers that operate the plans, accordingto the report (Wall Street Journal, 1/8). CMS officialssaid that Medicare spending for beneficiaries in traditional Medicareaveraged $9,538 in 2006, compared with an average of $10,133 forthose in private Medicare Advantage plans. However, according toFoster, the report does not indicate that MA plans have increasedMedicare spending (CQ HealthBeat, 1/8).


Medicaid spending in 2006 decreased by nearly 1% to $310.6billion, the first decline in spending since the program began in1965, according to the report. Medicaid in 2006 accounted for 9% ofretail prescription drug spending, compared with 19% in 2005, thereport found.

Most of the decrease in Medicaid prescriptionspending resulted from a shift in coverage for many beneficiaries tothe Medicare prescription drug benefit, according to Catlin. Thereport also cited increased state restrictions on Medicaideligibility and frozen or reduced reimbursements for health careproviders that participate in Medicaid.

In 2006, Medicaidenrollment increased by only two-tenths of 1%, the smallest rate ofincrease since 1998, the report found (New York Times,1/8).

Additional Results

The report also found:

  • Consumer out-of-pocket health care spending increased by 3.8%\tin 2006 (Washington Post, 1/8);


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    Employer health care spending in 2006 increased by 5.7% to\t$496.8 billion (New York Times, 1/8);


  • Private health insurers in 2006 reduced prescription drug\tspending and increased premiums by 5.5%, the smallest rate of\tincrease since 1997, in part because of a shift in retiree\tmedication costs from employers that provide benefits to Medicare\t(Washington Times, 1/8);


  • Spending on physician services in 2006 increased by 5.9% to\t$447.6 billion, the smallest rate of increase since 1999;


  • Spending on nursing homes in 2006 increased by 3.5% to $124.9\tbillion, the smallest rate of increase since 1999 (New York\tTimes, 1/8);


  • Spending on wheelchairs, walkers, artificial limbs and other\tmedical equipment in 2006 increased by 2.3% (Freking, AP/San\tFrancisco Chronicle, 1/7);


  • Spending on hospital care in 2006 increased by 7% to $648\tbillion;


  • Spending on home health care in 2006 increased by 9.9% to\t$52.7 billion (CQ HealthBeat, 1/8); and


  • Spending on health care administrative costs in 2006\tincreased by 8.8%, in large part because of the launch of the\tMedicare prescription drug benefit (Washington Post,\t1/8).


Ron Pollack, executive director of FamiliesUSA, said, "Many people involved in health care will say,'Hey, wait a minute, 6.7% ... things are moderating,' but for averagepeople around the country, they don't see this as moderation."He added, "People just see that health care costs are risingfaster than their wages" (Los Angeles Times,1/8).

Paul Ginsburg, president of the Centerfor Studying Health System Change, said, "Many factorsindicate that relief for purchasers and consumers will beshort-lived. Research on local health care markets suggests thatrapid expansion of provider capacity and incentives to increasevolume of care are continuing" (CQ HealthBeat,1/8).

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