Health-care spending hits nearly $2 trillion

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medicaidU.S. spending on health care hit nearly $2 trillion in 2005, fueled by the cost of hospital care, doctor fees and prescription drugs, government experts said in an annual report released on Tuesday.

Health-care spending grew 6.9 percent to about $1.99 trillion from about $1.86 trillion in 2004, a slower pace than the 7.9 percent increase a year earlier, the report by the National Health Statistics Group found. The increase outpaced a 3.4 percent rise in inflation in 2005.

The statistics group is part of the Centers for Medicare and Medicaid Services (CMS), the single largest payer for U.S. health care.

Leading the increase were hospital services, which grew 7.9 percent to $611.6 billion and accounted for 31 percent of all U.S. health care dollars in 2005. Rising labor costs amid a sustained worker shortage were major factors, according to the report, one of the most comprehensive available.

Doctor and clinical services rose 7 percent to $421.1 billion, while nursing home and related care went up 6 percent to $121.9 billion.

Prescription drug spending also increased 5.8 percent in 2005 to about $200.7 billion, tempered by reduced use of pain relievers such as Merck Inc.'s withdrawn arthritis drug Vioxx, the report said.

Still, medication costs contributed largely to the growing share of costs for those covered by private health insurance plans in 2005, the report said. At the same time, brand name prescription drug prices rose an average of 6 percent.

Even as the rate of growth for insurance plan premiums slowed, findings showed consumer out-of-pocket spending rose amid growing drug costs, followed by doctor and dental services.

Premium growth slowed to 6.6 percent at $694.4 billion last year, down from 7.9 percent growth in 2004 as employers added deductibles and curbed coverage instead of raising employees' share of the fees.

"These actions might slow premium growth for employers, but they ultimately increase the burden on individuals as their direct out-of-pocket costs increase," the economists wrote.

While health-care spending continued to grow last year, it was at a slower pace for the third straight year, they added, in part due to more generic drug use, changes in various therapies and fewer drug costs for the nation's poor.

Health-care costs also took up the same portion of the gross domestic product (GDP) as they did in 2004 -- about 16 percent, the report said. But it was unclear if that was a new trend.

"The current moderation in the rise of the health share of GDP indicates that at least for now, health spending is growing at a rate nearly comparable to the rest of the economy," the group said.

Additionally, spending for Medicare -- the federal insurance program for the elderly and disabled -- grew 9.3 percent to reach $342 billion last year. While slightly less than 2004's 10.3 percent growth, it still "was faster than average" compared to the previous decade, the report found.

Growth in prescription drug costs under the program rose the most -- 19.7 percent -- but made up just 1.2 percent of its total spending. That included the cost of Medicare's temporary drug cards but not the full benefit that began January 2006.

Spending for Medicaid, the U.S. insurance program for the poor, also grew 7.2 percent to $179 billion.

Copyright © 2007 Reuters Limited