AEGiS-WSJ: Health-Care Outlays Climb at Slowest Rate in Years

Important note: Information in this article was accurate in 2009. The state of the art may have changed since the publication date.

Health-Care Outlays Climb at Slowest Rate in Years

Wall Street Journal - January 6, 2009
Vanessa Fuhrmans, vanessa.fuhrmans@wsj.com and Jane Zhang, Jane.Zhang@wsj.com

Health-care spending grew at its lowest rate in nearly a decade in 2007, but it continued to swallow an ever-bigger portion of U.S. gross domestic product and family budgets, a new federal study shows.

Restrained by a sharply slower growth in prescription-drug spending, the nation's health-care tab grew 6.1% to $2.2 trillion, or $7,421 a person. That's down slightly from the 6.7% growth in 2006, according to the study being published Tuesday in the journal Health Affairs.

The data, which tally both private and public health spending, hardly represent a reprieve from soaring medical costs. Health-care spending again expanded faster than the overall economy, suggesting its share of GDP will climb as the economy remains mired in a protracted recession. In 2007, health care consumed 16.2% of GDP, up from 16% in 2006.

The findings are likely to add fodder for all sides of the health-overhaul debate expected to take center stage in Washington this year. As health costs continue to mount, some Democratic leaders argue an ambitious overhaul can't be delayed. Other lawmakers say it would be far too costly, particularly as President-elect Barack Obama and Congress need to contend with a broken economy.

While most health-care services grew at the same rate or faster in 2007 than in 2006, the pace of prescription-drug spending slowed to its lowest rate in 45 years, climbing 4.9%, compared with an 8.6% increase the year before, the study found. The slower growth stems primarily from big shifts in the pharmaceutical landscape.

Generic drugs, which can be 80% cheaper than their brand-name versions, have found wider use as a wave of blockbuster drugs -- such as anticholesterol pills Zocor and Pravachol, and antidepressant Zoloft -- have lost patent exclusivity in the past three years.

Under pressure after several safety debacles, the Food and Drug Administration has stepped up the number of "black box" safety warnings it issues on drugs, slowing growth in drug spending. In addition, the pace of Medicare drug spending is leveling off some after the initial cost of launching the federal program's drug benefit in 2006.

Going forward, there are signs the deepening economic slump will compound the prescription-drug slowdown. More consumers -- facing steeper copayments and deductibles, or no coverage at all -- are cutting back on medicines. The number of filled prescriptions were sluggish last year, and even fell in the second quarter, the first negative quarter in at least a decade, according to market researcher IMS Health.

That's an ominous sign for drug makers, already struggling to discover new drugs to replenish their pipelines. Pills for such chronic conditions as diabetes and cardiovascular disease are vulnerable, since patients tend to think they can do without treatments for so-called silent diseases more easily than for conditions such as cancer or HIV.

While health-care spending is rising at its slowest rate in years, it still continues to climb much faster than GDP or wages. "Recent history has shown that through the downturns, health spending has remained somewhat insulated from the effects of a slowing economy and has increased as a share of GDP," said Micah Hartman, the study's lead author and a statistician with the agency that runs Medicare, the federal health program for the elderly and disabled.

The government also is picking up more of the nation's health-care tab, according to the study. Federal, state and local governments paid for 46.2% of health-care spending in 2007, up from 45.3% in 2004 and 37.6% in 1970. Public health spending also grew faster than outlays by employers and other private sources in recent years.

The government's bulging share was partly caused by changes in Medicare, the authors said. The drug benefit, launched in 2006, cost Medicare $40.5 billion in 2006 and $47.6 billion in 2007, according to the study.

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