U.S. Health Care Spending Reaches
All-Time High: 15% of GDP
by Robert Pear
Published by the New
York Times, January 9, 2004
Health spending accounts for nearly 15 percent of the nation's economy, the largest share on record, the Bush administration said on Thursday.
The Department of Health and Human Services said that health care spending shot up 9.3 percent in 2002, the largest increase in 11 years, to a total of $1.55 trillion. That represents an average of $5,440 for each person in the United States.
Hospital care and prescription drugs accounted for much of the overall increase, which outstripped the growth in the economy for the fourth year in a row, the report said.
Complete data on health care spending in 2003 are not yet available, and some experts say the rapid growth of the last few years may be slowing. Prof. Uwe E. Reinhardt, a health economist at Princeton, said: "The increase in health spending is no surprise whatsoever. This is what the American people asked for when they abolished managed care."
Many consumers rebelled at limits on their choice of doctors and hospitals. The increase comes before baby boomers become heavy users of care. It does not reflect the increased demand for prescription drugs likely to result from the Medicare law signed last month by President Bush.
"We've had two successive years of rather dramatic increases in the share of gross domestic product going to health care," said Katharine R. Levit, director of national health statistics at the department. "Everyone, from businesses to government to consumers, is affected."
Projections put health spending at 17.7 percent of gross domestic product, or G.D.P., by 2012, the government said last February.
Health spending surged in recent years while the economy sputtered. As a result, health spending rose from 13.3 percent of the G.D.P. in 2000 to 14.1 percent in 2001 and 14.9 percent in 2002, the report said. From 1992 to 1999, the share was stable.
Ms. Levit said that factors driving the growth in health spending showed "signs of dissipating in 2003." Typically, she said, it takes two or three years for changes in the economy, like the 2001 recession, to affect the health care sector.
Likewise, Kenneth L. Sperling, a health care consultant at Hewitt Associates, said there had been a tapering off of the sharp rise in the use and prices of hospital services and prescription drugs. He expected the trend to be reflected in a lower rate of growth in health spending in 2004.
Spending for hospital care reached $486.5 billion in 2002, a 9.5 increase over the prior year. It was the first time since 1991 that hospital spending had grown faster than health spending generally.
Ms. Levit said the increase reflected a growing demand for hospital services and rises in the number of admissions, the length of hospital stays, the cost of malpractice insurance and the wages and benefits of hospital employees. In addition, she said, hospitals have shown an increased ability to negotiate higher prices as the constraints of managed care have waned.
The new federal figures were published in the journal Health Affairs.
Even though more than 43 million Americans are uninsured, the United States devotes more of its economy to health care than other industrial countries. In 2001 -- the last year for which comparative figures are available -- health accounted for 10.9 percent of the gross domestic product in Switzerland, 10.7 percent in Germany, 9.7 percent in Canada and 9.5 percent in France, according to the Organization for Economic Cooperation and Development.
Public spending on health care accounts for 45 percent of all health spending in the United States, compared with a 72 percent average in O.E.C.D. countries. But health spending has outpaced economic growth in most of those countries, putting pressure on government budgets.
Prescription drugs accounted for 10.5 cents of every dollar spent on health care in the United States in 2002, and for about one-sixth of the increase in health spending.
Drug companies cite those figures in arguing that they have been unfairly vilified as a major source of rising health costs.
But another statistic helps explain why drug costs have become a potent political issue. They account for 23 percent of what Americans spent on health care out of their own pockets, and 51 percent of the increase in such spending, in 2002.
Total out-of-pocket spending on health care rose $12 billion, to $212.5 billion in 2002. Out-of-pocket spending on prescription drugs rose $6.1 billion, to $48.6 billion.
Insurance coverage of drugs has grown in the last 20 years, Ms. Levit said. But consumers' out-of-pocket spending on medicines exceeded the amount of their own money that they spent on hospitals, doctors, dentists or nursing homes in 2002. Drug spending rose 15.9 percent in 2001, 16.4 percent in 2000 and 19.7 percent in 1999.
Cynthia Smith, an economist at the Department of Health and Human Services, said the increase "has arisen largely from increased use of new drugs, rather than from increasing prices of existing drugs."
Mark V. Pauly, a professor at the University of Pennsylvania, said he saw no evidence that the increase in health spending had been "cosmically harmful to society." Indeed, he said, "for middle-class people with health insurance," the value of the health care they receive is often worth the additional cost.
But Mr. Pauly said the increase in health costs and spending tended to hurt the uninsured.
Since 1985, the report said, per capita health spending has grown more slowly under Medicare than under private insurance. Liberals say that shows Medicare is more efficient. But conservatives trace much of the difference to the fact that private insurers have provided more generous benefits.