Health Care Spending Slowing, but Still Growing

The United States continues to have the highest per capita health care spending among industrialized countries, but a new study published in the journal Health Affairs suggests we might finally be turning the tide.

The rate of growth in U.S. health care spending slowed for the third straight year in 2005. The study's authors, who work for the centers for Medicare and Medicaid Services, say this marks the slowest growth rate in health spending since 1999, when enrollment in more tightly managed care plans peaked.

But while this is a positive development, the bottom line is that the spending may continue to increase, despite the slowdown.

"Every year, when rates-of-spending increases are slightly lower than the year before, some people try to spin this as good news," said Alan Sager, professor of health policy and management and director of the Health Reform Program at Boston University School of Public Health. "What it really means is that we're driving at high speed toward the edge of the cliff, but not quite as quickly as last year. Is this drop in speed meaningful? No."

Others agree that we need to be cautious.

"Any celebration is premature," said Karen Davis, president of the Commonwealth Fund, a private foundation that aims to promote a high-performing health care system. "The United States still spends a staggering $6,697 per person per year on health care, more than twice what any other industrialized country spends. And even the slower spending growth of 6.9 percent continues to outpace inflation and growth in wages for the average worker in the United States."

Behind the Slowdown

The health care spending slowdown was not unexpected.

"The slowdown was expected and is important," said Gail Wilensky, an economist and senior fellow at Project HOPE, a private organization that works to achieve sustainable advances in health care around the world. "But whether this slowdown will continue is another matter. Many of the changes are likely to be either 'one-off' or of limited duration."

The slowdown in health care spending also reflects the overall state of the economy.

"This trend represents a normal path in the cycle of health care spending growth and relative decline," said Leif Haase, senior program officer and health care fellow at The Century Foundation, a nonprofit organization.

"The article is significant in showing the relationship between trends in health care spending and in the overall economy," said Robert Field, associate professor and chair of the Department of Health Policy and Public Health at the University of the Sciences in Philadelphia. "Unemployment is a major predictor of health status; therefore health care spending rises in down economies and falls in good ones."

"The slowing in spending growth likely reflects recent improvements in economic growth and employment," Field added.

In light of this, some observers say the slowdown is probably linked to the most recent recession.

"The article suggests [the slowdown] is a typical time-lag with the 2001 recession, and the pattern has been seen before," said Norman Daniels, professor of ethics and population health at the Harvard School of Public Health.

In addition, the fact that consumers spent less on prescription drugs -- partly because of increased use of generic alternatives -- may have also helped put the brakes on rising health care costs.

However, not all health care spending showed signs of leveling off. The study shows that consumers are spending more and more on hospital costs; this sector of spending accounted for the largest share of overall spending in both 2004 and 2005.

The Staggering Costs

Whether or not the slowdown can be explained entirely, one thing remains clear -- the costs are staggering and continue to grow.

The health care portion of gross domestic product (GDP) was 15.9 percent in 2004 and increased to 16 percent or almost $2 trillion in 2005. This amounts to $6,697 per person.

U.S. health care spending is expected to increase at similar levels for the next decade, reaching $4 trillion in 2015, or 20 percent of GDP.

In 2006, employer health insurance premiums increased by 7.7 percent -- two times the rate of inflation -- according to the National Coalition on Healthcare. The annual premium for an employer health plan covering a family of four averaged nearly $11,500, and the annual premium for single coverage averaged over $4,200.

The Coalition also said that inefficiencies significantly increase the cost of medical care and health insurance.

"The health care finance system loads on lots of costs that we don't need," said Joe White, Luxenberg Family Professor of Public Policy at Case Western Reserve University in Cleveland.

Others highlight the fact that a growing number of aging baby boomers will likely push spending up even further.

Another significant reason for the overspending is the fragmented health care system that exists in the United States. This creates a bleak future as health care costs continue to skyrocket.

"We regrettably have no 'system.' We instead have a situation," said Dr. Michael McGarvey, former chief medical officer of Horizon Blue Cross Blue Shield of New Jersey. "I definitely think a shift to a greater emphasis on preventive care would serve our nation and our people very well."

Preventive Medicine May Define Future of Health Care

Both doctors and patients may look to preventive medicine as a solution to keep costs relatively low.

"Clearly, America needs to move toward more emphasis on preventive care and on primary care," said Field. "We as patients and potential patients can help cut spending by trying to stay healthy. We can get preventive care such as screenings, recommended immunizations, and regular checkups and lead healthy lifestyles."

Thus far, relatively few Americans are seeking preventive care, said Davis.

"Despite widely documented benefits of timely preventive care, barely half of American adults receive preventive and screening tests according to guidelines for their age and sex," she said.

Other observers agree that emphasis on preventive care and healthier living not only translates into fiscal savings, but more importantly, better health.

"We are fooling ourselves if we think there is an easier way," said Field. "If we, as a society, lead lifestyles that increase the risk of preventable diseases, we should not be surprised at the size of the bill."