Health spending in the U.S. grew 6.1% in 2007

January 22, 2009
What's Happening with Seniors Benefits

Health spending in the U.S. grew 6.1% in 2007 to $2.2 trillion or $7,421 per person.

According to a new report from the Centers for Medicare & Medicaid Services (CMS), this was the slowest rate of growth since 1998 and 0.6 of a percentage point lower than the growth of 6.7% in 2006. Health care spending, however, continues to outpace overall economic growth, which grew by 4.8% in 2007.

Even as health care spending growth slowed, the health spending share of the nation's Gross Domestic Product continued to climb, reaching 16.2% in 2007, up by 0.2 percentage point from 2006.

Retail prescription drug spending grew 4.9% in 2007, slower than the 8.6% growth in 2006. Prescription drug prices grew 1.4%, much slower than the 3.5% growth the previous year.

Spending for most other health care services grew at about the same rate or faster than in 2006.

Hospital spending, which accounts for about 30% of total health care spending, grew 7.3% in 2007, compared to 6.9% in 2006. Physician and clinical services' spending increased 6.5% in 2007, the same rate of growth as in 2006.

Spending growth for both nursing home and home health services accelerated in 2007.

For nursing homes, spending grew 4.8% in 2007, compared to 4.0% growth in 2006. Spending growth for home health care services increased to 11.3% in 2007.

Total health care spending by public programs, such as Medicare and Medicaid, grew 6.4% in 2007, a deceleration from 8.2% growth in 2006. In comparison, health care spending by private sources of funds grew 5.8% in 2007, compared to 5.4% growth in 2006.

Recent growth in public spending is attributable to the Medicare Prescription Drug, Improvement, and Modernization Act of 2003. Under this legislation, Medicare beneficiaries gained access to Part D prescription drug coverage in 2006, which added expenditures totaling $40.5 billion to the Medicare program.

Medicare spending grew 7.2% in 2007, following the 18.5% growth in 2006 that resulted from the one-time implementation of Medicare Part D. Spending growth for fees for service Medicare slowed significantly to 3.6% in 2007, while Medicare Advantage spending increased 23.3%.

Total Medicaid spending grew 6.4% in 2007, following the first spending decrease in the program's history in 2006 of -0.7 percent. The increase in 2007 marked the return to a more normal growth trend following the one-time impact of the introduction of Part D in 2006, which shifted drug coverage for dual-eligibles from Medicaid into Medicare.

CMS found that overall private health insurance premiums grew 6.0% in 2007, the same rate as in 2006, but much lower than the recent peak of 10.7% in 2002. Over this period, private health insurance benefit payments also slowed, from 9.4% growth in 2002 to 6.6% in 2007.

Out-of-pocket spending grew 5.3% in 2007, an acceleration from 3.3% growth in 2006. This increase was mainly due to prescription drugs, nursing home services, and nondurable medical supplies. Out-of-pocket spending accounted for 12.0% of national health spending in 2007.

This share has been steadily declining. In 1998, it accounted for 14.7% of health spending. In 1968, out-of-pocket spending accounted for 34.8% of all health spending.

At the aggregate level, the shares of financing for health services and supplies by businesses (25%), households (31%), other private sponsors (4%), and governments (40%) remained relatively steady in 2007.