US Health Care Spending Growth Slowed in 2007

Although US health care spending grew more slowly in 2007, its rate still outpaced general economic growth.  Total health care costs in 2007 reached $2.2 trillion or $7,421 for every American.

The Centers for Medicare and Medicaid Services released a report from the CMS Office of the Actuary on Tuesday that showed overall health care spending grew at a 6.1 percent rate in 2007, down from 6.7 in 2006 and the slowest rate of growth since 1998.  Overall economic growth was 4.8 percent.

Health care spending’s share of the Gross Domestic Product continued to increase, reaching 16.2 percent, an increase of 0.2 percent over 2006.

CMS attributes the slower spending growth to retail prescription spending and lower costs of administering Medicare benefits.

  • Prescription drug prices increased by 1.4 percent in 2007 compared to 3.5 percent in 2006.  The slower growth was driven by more use of generics and by generic drug discount programs in large retail chain stores.
  • Spending for hospital care, which accounts for about a third of overall health costs, increased by 7.3 percent in 2007 over 6.9 percent in 2006.
  • There was no change in physician and clinical services growth in 2007, increasing by 6.3 percent.  However, growth in payments to physicians decreased during the year, while costs for stand-alone clinics and urgent care centers increased.
  • Costs for nursing home care increased by 4.8 percent compared to 4 percent in 2006.  Spending for home health care rose by 11.8 percent.
  • Spending for public programs including Medicare and Medicare grew more slowly in 2007 at 6.4 percent, down from 8.2 percent.  However, private spending grew somewhat faster at 5.8 percent in 2007 compared to 5.4 in 2006.
  • Private insurance health care premiums grew 6 percent, the same as the previous year, but significantly less than the 10.7 increase in 2002.  Increases in payments from health care insurance also slowed to 6.6 percent, down from 9.9 percent in 2002.
  • Out-of-pocket spending by individuals grew 5.3 percent, up from 3.3 percent in 2006.
  • Overall, the amount of health care paid for by individuals out-of-pocket is decreasing.  In 2007 it represented 12 percent of all health care spending.  It was 14.7 percent in 1998 and 34.8 percent in 1968.

Health care services and supplies were financed by

  • businesses (25 percent)
  • households (31 percent)
  • other private sponsors (4 percent)
  • governments (40 percent)

Commenting on the report CMS Acting Administrator Kerry Weems said,

This is another reminder that the cost of health care continues to be a real and pressing concern facing the American public and the federal government. This report – like the reports issued last year on the financial status of Medicare and Medicaid – is a stark reminder that we must redouble our ongoing efforts to reform the delivery of health care services in this country to bring about the goal of affordable, high quality health for all Americans.

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