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U.S. Health Spending Nears $2 Trillion

Increases Slow but Continue to Tax Families, Economy

WebMD Health News

Jan. 10, 2006 - The U.S. spent nearly $2 trillion on health care in 2004, and consumers are being asked to shoulder a higher and higher share of rising costs, according to federal figures released Tuesday.

The nation spent $1.88 trillion overall on health care, 7.9% more than was spent in 2003. While the increase was slower than in recent years, analysts still warned that health costs continue to rise faster than the economy or individuals' ability to pay.

Health spending last year grew more slowly than it did in 2003, a trend government analysts attributed largely to more use of lower-cost generic drugs by both private and taxpayer-funded health programs.

Prescriptions are a key driver of health costs, a fact that has caused many employers to seek new ways to control spending by encouraging generic use by workers in company health insurance plans. Officials said that overall drug spending in 2004 grew at just under half the rate it had five years ago.

But despite the shifts, Americans are still paying more than ever for their health care. U.S. households spent $557 billion on health care last year. In per capita terms, overall spending rose from $5,879 in 2003 to $6,280 in 2004.

At the same time, the nation is now spending a full 16% of its gross economic output on health care, a figure that has more than doubled since 1970, according to the federal Centers for Medicare and Medicaid Services.

Passing on Costs

Rising health costs have spurred persistent increases in insurance premiums, which now cost an average of $10,000 per year for a family of four. That cost is usually shared by employers and their workers, but relentless increases have put more and more pressure on both groups.

Many employers have moved to increase the co-payments and deductibles beneficiaries pay for care. Tuesday's numbers show that such out-of-pocket costs went up an average of 5.5% last year.

According to the report, employers have also begun to put more premium costs onto workers. Overall, firms cut premium contributions for workers by 1.3%, shifting the amount to employees on top of yearly cost increases.

"It looks like they're passing a little more of the increases to the employee in 2004," says Cathy Cowan, an analyst that helped write the report.

No Relief in Sight

Analysts say they were somewhat encouraged by the slowdown in spending but still warned that potentially unsustainable spending increases still loom.

Kenneth Thorpe, PhD, a professor of health policy at Emory University in Atlanta, tells WebMD that lower drug prices could be "one-time" gains that won't persist for longer than a couple of years. At the same time, longer-term trends, like the imminent retirement of the baby boom generation and rising obesity rates, are likely to drive health spending higher to treat and prevent chronic diseases.

"The long-term trends I see are just going to continue to put consistent pressure on spending," Thorpe notes.

Paul B. Ginsburg, head of the Center for Studying Health System Change, a Washington policy group, warns that health costs continue to outpace both individual wages and the nation's overall economic growth.

"This is slowing to a rate that's still very high in relation to the ability to pay for care," Ginsburg tells WebMD. "It still means that health care is becoming more unaffordable to more people, and that tempers the good news of a slowdown."

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