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Growth Rate Slows for Healthcare Spending

But experts say costs are still outpacing inflation and affordability remains a grave concern.

June 09, 2004|From Associated Press

The rate of growth in healthcare spending in the U.S. fell for the second year in a row in 2003 as demand for health services dropped, in part because workers were forced to pick up more of the tab for their care.

But experts said costs were still outpacing inflation and remained a grave concern as more people were unable to afford healthcare.

Healthcare spending for each privately insured person increased 7.4% last year, down from a 9.5% rise in 2002 and a 10% gain in 2001, according to a report by the Center for Studying Health System Change, a Washington-based public policy research organization.

The growth rate is still historically high. The inflation rate in 2003 was 1.9%. And the gap between the rise in health spending and gross domestic product -- which was 3.8% last year -- widened to 3.6 percentage points, compared with a 30-year average of 2.5 percentage points.

"The bad news is this is still a high rate of increase, and the fact that it is lower than last year doesn't mean it has gotten easier to find affordable healthcare," said Paul Ginsburg, the center's president.

The cost-shifting was most prevalent in prescription drug plans, Ginsburg said.

More health insurers have been instituting three-tiered drug plans that force employees to pay more for brand-name drugs, making cheaper generic medicines more popular. That's a major reason that pharmaceutical spending rose 9.1%, down from the 12.3% rise in 2002.

According to pharmacy benefit manager Express Scripts Inc., the average price of a prescription drug before discounts rose 7.9% last year, down from a 13.1% increase a year earlier. The company cited greater use of generic drugs.

The study also said that drug price inflation shrank to 3.1% last year, down from just over 5% a year earlier.

Spending on hospital outpatient centers rose 11% -- the largest jump in the study. A year earlier, spending in that sector had increased 12.9%. Ginsburg said spending was growing because advances in technology allowed more procedures to be conducted outside the hospital.

The 6.5% rise in spending on hospitals worried Ginsburg because it resulted from higher costs, not more utilization. In fact, utilization was only up 0.9% last year. Hospital prices for both inpatient and outpatient care increased 8% in 2003, compared with a 5.2% jump in 2002.

Ginsburg said utilization of various health services was beginning to normalize as managed care policies that restricted the use of doctors and hospitals in the mid-1990s were abolished and paved the way for explosive, pent-up demand in the late 1990s and early this decade.

Spending on physician care increased 5.1% in 2003, compared with a 6.5% increase in 2002. It was the slowest-growing category of health spending for the third year in a row.

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